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Can Sophisticated Parties Avoid the Delayed Discovery Rule to Shorten the Statutory Time for Bringing Construction Defect Actions?

Posted on June 18th, 2013

The California Court of Appeals for the First Appellate District decided this issue – which was one of first impression for California Courts – in its June 3, 2013 Brisbane v. Webcor[i] decision.  Despite courts in other states who said “no” by finding the delayed discovery rule applicable in such situations, the First District’s answer was “YES.”  The basic facts were these:

Webcor contracted with Brisbane Lodgings to construct a 210-room, eight-story hotel, to be known as the Sierra Pointe Radisson Hotel.  The agreement was extensively negotiated between the parties and, in its final form, contained what they had agreed was “mutually acceptable language,” including the 1997 American Institute of Architects [AIA] “Standard Form of Agreement Between Owner and Contractor (Cost Plus Fee) and the AIA Document A201 General Conditions.” 

The AIA A201 provisions included Article 13.7.1.1, limiting the time in which to bring defect actions with respect to work completed before substantial completion of the project.  It stated that, with respect to acts or failures to act occurring before substantial completion of the project:

“[A]ny applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion.”

The Court found that it was “undisputed that the Radisson was substantially completed on July 31, 2000.”  In early 2005, Brisbane learned of a kitchen sewer line break from which waste was escaping and flowing under the hotel.  Brisbane notified Webcor and attempted temporary repairs.  Webcor inspected and concluded that the problem was a latent defect in the work of plumbing contractor Therma Corporation, which was contacted and, in July 2005, made repairs. 

In October 2007 Brisbane discovered additional plumbing problems had arisen and notified Webcor and Therma.  Webcor decided it wanted Therma to investigate and identify the source of the leak.  Therma visited the property but investigated a different section of pipe, running a camera through it.  The camera fell out of the pipe, indicating the pipe had become disconnected, but Therma did not inform Brisbane of the discovery. 

In January 2008, Webcor told Brisbane it and Therma considered the issue closed.  Brisbane objected and, after further investigation, discovered that Therma had used ABS pipe instead of the cast iron product required by building code.  Brisbane filed its complaint in May, 2008 and Webcor sought summary judgment on the assertion that Brisbane’s filing was time barred by the terms of the contract.

Explaining its findings, the Court said, in the published portion of its opinion:

 “…[W]e conclude that public policy principles applicable to the freedom to contract afford sophisticated contracting parties the right to abrogate the delayed discovery rule by agreement. Under the clear language of the parties‟ contract, Brisbane’s action was untimely. The time for bringing Brisbane’s claims against Webcor started to run upon substantial completion of the project, and Brisbane’s lawsuit was brought more than four years after the agreed-upon accrual date, which was outside the applicable limitations period. (Code Civ. Proc., §§ 337, 337.1.)1 Accordingly, we affirm [the trial court’s summary judgment for Webcor].”  Brisbane v Webcor, Id., at 2:1 – 8.

What do we see as the take-away, here?

Contract negotiations are of vital importance, for the life of the project and well beyond.  This has always been true, but even more so now.  Consequently, all negotiations must be conducted with all eyes wide open and with singular care to ascertain and effectuate the parties’ actual intent and to determine the intended and unintended consequences of each provision that is proposed and/or accepted.

Attorneys in each of our offices throughout the state are available to assist with your needs.  We are pleased to provide you with full-spectrum business defense and advising services in each of our offices.  Please contact us at your convenience to discuss your specific concerns.

 

 


[i] Brisbane Lodging, L.P. v. Webcor Builders, Inc. (Cal. Ct. App., June 3, 2013, No. A132555) 2013 WL 2404154 (Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of sections 5, 6, and 7 of part III.)