Date: 06-09-2005

Case Style: 1000 Virginia Limited Partnership v. v. Accounting Waterproofing et al.

Case Number: 54485-3-I

Judge: Anne Ellington

Court: Washington Court of Appeals, Division One on appeal from the Superior Court of King County

Plaintiff's Attorney:

Jami K. Elison and Linda L. Foreman of Marston Heffernan Foreman PLLC, Redmond, Washington

Defendant's Attorney:

Steven Jager and Marianna Valasek-Clark of Jager Law Office, PLLC, Seattle, Washington

Description:

This is an action arising out of water penetration in a new building. Owner and general contractor 1000 Virginia Limited Partnership sued Vertecs Corporation, alleging Vertecs' installation of stucco siding was defective. The only issue here is whether the claim was timely. The trial court held that questions of fact precluded summary judgment on the six-year contract statute of limitations, but that 1000 Virginia had conceded that its sole remedy was a one-year warranty in its contract with Vertecs. The court therefore dismissed the action against Vertecs as untimely. The record does not, however, reflect such a concession, which would in any event be inconsistent with the pleadings and with the contract itself. Whether the claim was timely filed is a question of fact. We reverse.

FACTS

Acting as its own general contractor, 1000 Virginia built a four-story apartment complex. Vertecs was the stucco subcontractor, providing labor and materials. Excluded from Vertecs' scope of work were caulking, flashing and weather protection. The certificate of substantial completion was issued on December 31, 1992. Occasional leaks occurred thereafter, and repairs were made to caulking around windows and vents. On January 5, 1994, 1000 Virginia asked Vertecs to inspect and determine whether defects in its work were a source of water intrusion.1 Vertecs reported its conclusion that caulking had failed at numerous locations, and that some dryer vents were not connected to ductwork. Vertecs pointed out that these problems were not within the scope of Vertecs' work on the building.2 1000 Virginia repaired the caulking and ductwork.

Over the next few years, 1000 Virginia experienced other leaks, often coinciding with extreme weather conditions. 1000 Virginia repaired leaks as they occurred. But after a wet winter in 1996, 1000 Virginia observed increased cracks in the stucco and deteriorating drywall under decks. 1000 Virginia undertook more substantial corrective measures, including awnings to shield windows from the weather and a waterproofing system. Despite these measures, the leaks increased. By the end of 1998, 1000 Virginia knew there were systemic defects that would require substantial repairs to correct structural damage caused by water intrusion and fungal infestation.

On September 3, 2002, 1000 Virginia filed a breach of contract lawsuit alleging that defective work by several subcontractors led to water intrusion and damage to the building. Defendants included Vertecs, waterproofing contractor Accountable Waterproofing, and framing contractor Northern States Construction.

During 2003, the various defendants filed motions seeking summary judgment. Vertecs filed a motion contending the six-year statute of limitations began to run on December 31, 1992, when the certificate of substantial completion was issued. 1000 Virginia contended its action was timely filed within six years of discovery of the elements of its cause of action, under Architectonics Constr. Management, Inc. v. Khorram3 (applying the discovery rule to actions for breach of contract). Vertecs responded that the discovery rule should not apply because the alleged defects were observable at all times after construction was complete, and in the alternative, that even if the discovery rule applied, the limitations period began to run when 1000 Virginia became aware of leaks and water damage in the building in 1994. Accountable Waterproofing joined Vertecs' motion to the extent that Vertecs argued the discovery rule did not apply.

The court denied the motion 'with prejudice,'4 and clarified its ruling as follows:

1. The Court rules as a matter of law that for this case, the discovery rule is applicable to the statute of limitations defense.

2. There is a genuine issue of material fact regarding when the Plaintiffs discovered or should have discovered evidence sufficient to commence the statute of limitations.{5}

Thereafter, Accountable Waterproofing filed a motion for summary judgment, arguing first that even if the discovery rule applied, 1000 Virginia's claims accrued more than six years before suit was filed, and in the alternative, that the discovery rule did not apply because a recently enacted statute abrogates the rule in construction cases and applies retroactively. Accountable Waterproofing also argued that if 1000 Virginia's cause of action did not accrue until a specific defect was actually detected, the claims against Accountable Waterproofing were barred by the six-year statute of repose. Vertecs joined in the motion, which was denied.

Accountable Waterproofing then filed a second motion for summary judgment, arguing the two-year warranty provision in its contract with 1000 Virginia was the exclusive remedy for defective construction. The court denied this motion also. In late 2003, the lawsuit was assigned to a different judge. In early 2004, Vertecs filed a motion for summary judgment contending the one-year guarantee in Vertecs' contract was 1000 Virginia's sole remedy, and that the claim was barred by the doctrines of waiver, estoppel and/or laches. Northern States filed its own motion, asserting the same equitable defenses and arguing that the only conclusion a reasonable juror could make is that 1000 Virginia should have discovered the defects giving rise to claims against Northern States in 1993. Accountable Waterproofing joined in the motions on grounds of laches, waiver and estoppel.

The court ruled the equitable defenses did not apply, and that a question of fact existed as to when 1000 Virginia should have known its damages were connected to each defendant. The court thus denied the motions, except as to Vertecs, which the court ruled had made fatal concessions in oral argument:

Plaintiff conceded during argument that the breach of warranty applied to defendant Vertecs Corporation, thereby limiting any claim to one year after completion of the project. Further, plaintiff concedes that it sent a letter complaining of the damages specific to Vertecs Corporation in 1994, thereby limiting any claim to within one-year of the letter's date. Therefore, the claim against Vertecs Corporation is barred by the terms of the contract and the one-year limitation.{6}

The court dismissed 1000 Virginia's claims against Vertecs, and denied its motion for reconsideration.7 1000 Virginia appeals. Vertecs cross-appeals,8 contending that the court should have dismissed the action as barred by the statute of limitations or equitable defenses, and that either ground provides an independent basis to affirm dismissal.

ANALYSIS

We apply the usual standard of review on summary judgment.9

In granting Vertecs' motion,10 the court relied on two 'concessions' made by 1000 Virginia in oral argument: first, that a one-year limited guarantee provision in the subcontract constituted 1000 Virginia's sole remedy, and second, that the 1994 letter was a complaint about Vertecs' work. The court concluded the one-year limitation period began to run when the letter was sent, and dismissed the action against Vertecs. The court misinterpreted counsel's comments, which must be understood in the context of the parties' contracts. In its contract to do the stucco work, Vertecs guaranteed its material and workmanship for one year from date of final completion: '{D}efects directly attributable to this Subcontractor . . . shall be removed and replaced solely at Subcontractor's own expense.'11 Vertecs also agreed to 'warrant his materials and workmanship for a period of one year from the date of completion and acceptance of the entire work or such longer period of time as may be required by the MAIN CONTRACT.'12 The 'main contract' between the parties contained a general warranty of quality work free from defects. This warranty had no time limitation.13 The main contract also contained a correction of work provision, under which Vertecs agreed to correct any defects discovered within one year.

These are separate undertakings. Confusion arises because of the common tendency to use the term 'warranty' to refer both to contractual obligations and to the separate promise represented by the guarantee. 1000 Virginia sued only on the general warranty of work free of defects, and did not (for obvious reasons) assert a breach of the one-year guarantee, which Vertecs could not have breached because Vertecs was not asked to make repairs within the year following completion. In oral argument on the summary judgment motion, in answer to the court's query as to why 1000 Virginia had not asked Vertecs to repair the problem in 1998, counsel pointed out that after the one-year guarantee period had passed, 1000 Virginia had no right to demand that Vertecs return and make repairs: 'They are past the warranty period. They have no obligation to come out.'14

Further, counsel acknowledged that a problem with dryer vents was discovered in 1994, but pointed out that no part of 1000 Virginia's breach of contract claim against Vertecs related to dryer vents. He did not concede the 1994 letter ascribed water intrusion damage to Vertecs, and by its plain language it does not.

The court erred in granting summary judgment upon the basis that plaintiff's counsel conceded grounds for dismissal. This court can affirm, however, on any basis supported by the record.15 Vertecs makes several arguments for affirmance.

One-Year Warranty. Vertecs first contends the one-year warranty is indeed exclusive.16 But this question was resolved to the contrary in Graoch Associates #5 Limited Partnership v. Titan Construction Corp.,17 in which we held a one-year warranty was not an exclusive remedy for defective construction and did not bar a breach of contract claim, because there was no suit limitation provision in the construction contract. Graoch is dispositive.18 The language here is nearly identical. No suit limitation appears in the parties' contracts, and the main contract provides that the one-year time limits apply only to the specific undertakings: The establishment of the time periods noted in Subparagraph 13.2.2 {one year} or such longer period of time as may be prescribed by . . . any warranty required by the Contract Documents, relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the Contractor's obligation to comply with the Contract Documents may be . . . enforced, nor to the time within which proceedings may be commenced to establish . . . liability with respect to the Contractor's obligations other than specifically to correct the Work.{19 }

The one-year limitation period has no bearing on the breach of contract claims made here.

Discovery Rule. Vertecs next argues the trial court erred in applying the discovery rule and finding a question of fact as to when 1000 Virginia's cause of action accrued. In Architectonics Constr. Management, Inc. v. Khorram,20 this court held the discovery rule applies in actions for breach of contract. Under the rule, a cause of action accrues and the statute of limitation begins to run when a party discovers, or in the exercise of reasonable diligence should have discovered, the facts giving rise to the claim.21

Vertecs argues the discovery rule applies only where the injury is inherently undetectable. In North Coast Enterprises, Inc. v. Factoria Partnership,22 a window wall system began to leak shortly after construction was complete. Although the building owner initially believed the problem was minor, extensive leaking developed over time, and the owner hired a forensic engineering firm to inspect the building. The window wall system was found to be defective. The owner asserted a breach of contract claim six and a half years after construction was complete,23 arguing the discovery rule applied because the defects were latent. We did not reach the question of applicability of the discovery rule, because the circumstances did not support its application. In reaching that conclusion, we observed that the alleged injury was 'not inherently undetectable.'24

In Architectonics, homeowners found bubbling and peeling paint and rotted molding five years after construction was complete. They hired a contractor who discovered extensive dry rot in the walls, which was later determined to have been ongoing since construction was complete. The homeowners sued the builder seven years after the completion date, but less than two years after they discovered the alleged breach. We applied the discovery rule and held the lawsuit timely.25

We did not characterize the defects in Architectonics as 'inherently undetectable,' and we now observe that this phrase does not have the meaning Vertecs wishes to ascribe to it. For the discovery rule to apply, the breach must have been undiscovered (latent) and the plaintiff must show he or she reasonably failed to discover it (the 'knew or should have known' test). The phrase 'not inherently undetectable' as used in North Coast means only that the plaintiff failed the 'should have known' test as a matter of law, making the discovery rule irrelevant.

Vertecs next contends the defects in 1000 Virginia's building are like the defective window system in North Coast, because 1000 Virginia knew its building was leaking within one year of substantial completion. But in North Coast, the leaks occurred in precisely the part of the building later determined to have been defectively constructed. By contrast here, 1000 Virginia observed leaks around improperly caulked windows and unattached ductwork and dryer vents. 1000 Virginia has presented evidence that it did not discover defects in the stucco until 1997 or 1998, and that it could not have done so.26 Further, in North Coast there was only one potentially responsible contractor. Here, there were several subcontractors whose work may have contributed to the water intrusion.

Taking the evidence in the light most favorable to 1000 Virginia, there is a material issue of fact regarding when 1000 Virginia knew, or should have known, its injury was connected to Vertecs' work. The trial court did not err in so holding.

Equitable Grounds. Vertecs argues the equitable doctrines of waiver, estoppel and laches bar 1000 Virginia's claims because it knew there were leaks in the building as early as 1993, and by 1998 knew there were significant defects leading to water intrusion and damage, yet waited to file its lawsuit until 2002. The same questions of fact that preclude summary judgment based on the discovery rule make summary judgment based on these equitable doctrines improper.27

Statutory Abrogation of Discovery Rule in Construction Defect Cases. One year after Architectonics was decided, the legislature prohibited application of the discovery rule in construction cases. Under the new statute, codified as RCW 4.16.326(1)(g),28 an action for construction defects must be filed within six years of substantial completion of construction, regardless of discovery.29 Vertecs claims the benefit of the new statute.

The general rule is that statutes of limitation and the like, including statutes providing exceptions to those limitations, are given prospective application only.30 Although ''{l}imitation laws pertain only to the remedy and may be changed at the pleasure of the legislature, . . . such laws will not be given a retroactive effect unless it appears that such was clearly the legislative intention.''31 When the legislature enacts a shortened statute of limitations, the time frame for bringing claims that accrued before the new law's enactment begins to run on the new statute's effective date.32

Nothing in RCW 4.16.326 or its legislative history suggests that the legislature, merely because it disapproved of the discovery rule in construction defect cases, intended for the statute to become effective and be applied other than in accordance with these general principles. 1000 Virginia filed its lawsuit on September 3, 2002. RCW 4.16.326(1)(g) was enacted on April 21, 2003 and became effective on July 27, 2003.33 RCW 4.16.326(1)(g) thus became effective approximately 10 months after 1000 Virginia filed its claim.

Although statutory amendments generally apply prospectively, they will be applied retrospectively if the legislature so intended, or the amendment is curative, or the amendment is remedial.34 A statutory amendment is curative if it clarifies or technically corrects an ambiguous statute.35 A statute is remedial if it relates to practice, procedure, or remedies and does not affect a substantive or vested right.36 Nothing indicates the legislature intended the statute to be retroactive. Vertecs contends that S.H.B. 2039 was intended to be applied retroactively because it is curative and remedial in nature, relying upon McGee Guest Home, Inc. v. Dep't of Social and Health Servs. of Washington.37

In McGee, certain amendments to the Administrative Procedures Act were held retroactive. The court observed that amendments are often applied retroactively if the legislature acted ''during a controversy regarding the meaning of the law,''38 because the legislature's timing reflects its intent to cure or clarify a statute.39 The amendment at issue was expressly intended to clarify an ambiguity in the prior statute. The McGee court therefore concluded the amendment was curative and was intended to be retroactive. Here, there is nothing in the legislative history of S.H.B. 2039 indicating an intent to clarify an ambiguity in the law, nor is there any apparent ambiguity to clarify. Nor was the amendment remedial. While the statute relates to remedies, the cause of action accrued before the statute was enacted. Rather, the legislature chose to reject application of the discovery rule in construction cases. In addition, the McGee court was not addressing a new statute of limitations; precedent clearly disfavors the retroactive application of a change in the limitations period.

In Merrigan v. Epstein,40 the Supreme Court clarified the procedural status of legislative changes affecting statutes of limitations: 'It has been broadly stated that statutes of limitation are to be given prospective application only. However, the matter is not that simple. An examination of the opinions show that statutes of limitation are acknowledged to be procedural and are retroactively applied, but are given special treatment. More accurately stated, the rule is that the new limitations law operates retroactively on causes of action which accrued prior to the change in the law, but the new period of limitations starts to run from the effective date of the statute which makes the change.'{41}

We conclude RCW 4.16.326(1)(g) does not bar 1000 Virginia's claim.

CONCLUSION

The trial court erred when it dismissed 1000 Virginia's claims against Vertecs on summary judgment, and we reject the arguments advanced by Vertecs to uphold the dismissal on other grounds. Reversed and remanded for further proceedings.

Outcome: The trial court erred when it dismissed 1000 Virginia's claims against Vertecs on summary judgment, and we reject the arguments advanced by Vertecs to uphold the dismissal on other grounds. Reversed and remanded for further proceedings.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None