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Construction Defect Claims: A New Statute of Limitations Analysis

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By:      Jacqueline A. Muttick, Esq.
            Associate, New Jersey
Date:   September 19, 2017

      On September 14, 2017, the New Jersey Supreme Court in The Palisades at Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC, articulated when the accrual date of the six year statute of limitations for construction defect claims accrues. The Court held that a construction defect claim accrues when the building’s owner, or a subsequent owner, knows or should have known though reasonable diligence about the existence of an actionable claim. Under the statute of limitations, the owner then has six years in which to bring a claim. For the purposes of the statute of limitations, a subsequent owner of the property stands in the shoes of a prior owner with regard to notice, so the statute of limitations begins to run upon notice to any prior owner.

            This litigation was instituted by Plaintiff The Palisades at Fort Lee Condominium Association (“Condominium Association”), who asserted construction defects at The Palisades. Palisades A/V Acquisitions Co., LLC (“A/V Acquisitions”), owned and developed The Palisades, hiring a general contractor who subsequently retained various subcontractors for the project. The architect certified the project as “substantially complete” on May 1, 2002. A/V Acquisitions then rented units for the following two years before selling the property to 100 Old Palisade, LLC (“Old Palisade”), which converted the rentals to condominiums. Old Palisade’s expert noted some defects at the property but no structural concerns, and a report reflecting the same was attached to the public offering statement and master deed. Old Palisade relinquished control to the Condominium Association in July 2006. The Condominium Association then hired its own expert who found additional construction defects and issued a report in June 2007. The Plaintiff subsequently filed suit against the general contractor and other entities in March 2009 and continued to add defendants to the lawsuit through the next year.

            Since substantial completion of the building occurred in May 2002, and the trial court determined that the six-year statute of limitations began running at that time, it followed that suit should have been filed by May 2008. Since the Condominium Association did not institute proceedings until after May 2008, the trial court dismissed those claims. Upon appeal, the Appellate Division reversed utilizing the “discovery rule”, finding that the construction defect claims did not accrue until the Condominium Association had full unit-owner control of the building and became aware of the claims through its expert. The New Jersey Supreme Court has now held that neither the standard utilized by the trial court nor the one employed by the Appellate Division were correct.

            The statute of limitations for tort-based property claims under N.J.S.A. 2A:14-1 requires instituting claims within six years of the date of accrual. Accrual of a claim begins when a reasonable person with ordinary diligence would be alerted that there was an injury due to another’s fault. Id. (slip op. at 19) (quoting Caravaggio v. D’Agostini, 166 N.J. 237, 246 (2001)). Accrual does not begin to run against an unknown third party until the plaintiff has evidence of that third party’s involvement, which may result in different accrual times against different defendants. Id. (slip op. at 23-24) (quoting Caravaggio, 166 N.J. at 248-250). Also applicable in determining accrual is the discovery rule, which holds that the time limit to bring a claim under an applicable statute of limitations does not begin to accrue until the plaintiff knew or should have known with reasonable diligence that an actionable claim existed against a defendant. Utilizing the statute of limitations and the discovery rule, the Court here determined that “[a] construction-defect lawsuit must be filed within six years from the time that the building’s original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action.” Id. (slip op. at 6-7) (emphasis in original).

            Furthermore, “[a] subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point.” Id. (slip op. at 7). Since a subsequent owner to a property takes title subject to the original owner’s rights, if the original owner knew or should have known of a construction defect claim then the subsequent owner will stand in the original owner’s shoes with regard to the statute of limitations. Id. (slip op. at 28). In other words, “[a] cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party.” Id. (slip op. at 29) (citing O’Keeffe v. Snyder, 83 N.J. 478, 502 (1980)).

            This accrual analysis applies even in situations involving condominium associations. In this matter, the first owner, A/V Acquisitions, was the developer and the Condominium Association was a subsequent buyer. As such, if a prior owner knew or should have known of a construction defect claim, then the statute of limitations began to accrue before the Condominium Association took ownership of the property. Since there is a question as to when the statute of limitations began to accrue, the Court remanded the litigation to the trial court for a Lopez hearing on this issue. Id. (slip op. at 7) (citing Lopez v. Swyer, 62 N.J. 267 (1973)).

            The Supreme Court also stressed that the 10-year statute of repose in construction defect cases remains in effect. The statute of repose, N.J.S.A. 2A:14-1.1(a), requires all construction defect claims against construction professionals be brought within ten years of the date of substantial completion. Id. (slip op. at 32-33). The six-year statute of limitations, in conjunction with the discovery rule, determines when a claim must be brought and the statute of repose sets an outside limit of ten years for those claims. Therefore, as noted by the Court, if a claim accrued eight years after substantial completion, the plaintiff in such a matter would have two years to bring a claim before having that claim barred by the statute of repose. Id. (slip op. at 33).
           
            There remains the unresolved issue raised by defendants regarding the claims barred by the statute of repose. The defendants noted that the statute of repose appears to bar claims involving “defective and unsafe” conditions arising from construction. Defendants were concerned that the statute of repose could be interpreted as barring those conditions that are both defective and unsafe, potentially leaving viable claims that only regard defects alone. A reading of the statute in this manner could result in a situation in which a claimant is able to bring a construction defect claim outside of the ten-year statute of repose. Utilizing the example provided by the Court, the instance could arise if a claim accrues eight years after substantial completion but does not impact safety and is therefore timely filed fourteen years after substantial completion. The Court declined to opine on this issue and noted that the wording of the statue could be addressed by the Legislature.

            The takeaway from this ruling is that construction defect claims do not accrue upon substantial completion but instead accrue when the building’s owner (or predecessor owner) knows or should have known though reasonable diligence about the existence of an actionable claim. The owner then has six years in which to bring a claim. This accrual date does not re-start when a new owner takes possession of the property but is instead imputed to each subsequent owner. The accrual date also may vary as to different defendants, depending on when the owner was or should have been aware of the claim. The ten-year statute of repose remains in effect and bars claims filed ten years after substantial completion, however the Court did not directly address in this opinion what claims the statute of repose specifically bars. 

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Firm Wins Significant Dismissal in Construction Defect Case, by Alexander D. Fisher, Esq.

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In a recent New Jersey decision, this Firm succeeded in obtaining partial summary judgment in a construction defect case, dismissing multiple causes of action and claims against our client.  With this decision, the Court dismissed over 98% of the Plaintiff’s claimed damages of $6.1 million asserted against our client. The case is Views at Hudson Pointe Condominium Association v. K. Hovnanian at Hudson Pointe, LLC, et al., venued in Superior Court, Hudson County.
  
In the Views at Hudson Pointe case, Plaintiff condominium association claims significant construction defects in a large residential condominium complex located on the shores of the Hudson River in North Bergen, New Jersey.  Our client, a concrete subcontractor, is alleged to have been responsible for concrete cracking and piping deficiencies in the two on-site garages.  As part of a plan to repair the alleged cracking, Plaintiff’s expert opined that an expensive traffic coating would be needed in each garage, at an approximate cost of $5.8 million dollars.

Through discovery, the following was determined: (1) the garage plans provided to our client did not include a traffic coating; (2) our client was not contracted to put down such a coating; (3) our client was not retained to design the garages, only to construct them; (4) no one ever requested our client to install a traffic coating; (5) Plaintiff’s expert stated that the inclusion of a traffic coating would have been a “better design” for the garages; and (6) multiple parties acknowledged that our client had no role in the installation of piping, and that the claimed deficiencies were the responsibility of the piping contractor.

Accordingly, we moved for summary judgment at the close of discovery, on the grounds that the installation of a traffic coating was an obligation not found in the contract and for which Plaintiff could not recover.  In granting this portion of the motion, the Court found it clear that the traffic coating had not been part of the original plans for the garages.  Furthermore, the Court found that our client had no role in the design of the garages, and therefore, could not be held responsible for the proposed cost of installing such a coating.  Therefore, the Court limited the Plaintiff’s recoverable damages against our client to the cost of repairing the cracks in the garages with concrete filler, which Plaintiff’s own expert estimated at approximately $100,000.00 dollars.  

The Court also dismissed the claims relating to piping in the garages, stating that the evidence clearly showed that our client played no role in this work.

This decision highlights that a Plaintiff in a construction defect matter may only recover damages that provide them with the benefit of the bargain – in this case, two garages without a traffic coating.  A Plaintiff in this type of action is not entitled to receive a better building than was envisioned by the plans.  

It is common for condominium association experts in construction defect cases to inflate the cost to repair the alleged defects by inserting items that substantially improve upon the design of a particular building.  With this decision, the Court affirmed that a plaintiff will not be permitted to inflate its damages estimates in order to improve a building with upgraded designs and/or materials.  


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Mold Up in the Air: Settled, by Arthur Xanthos

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Our January 16, 2014 entry entitled “Mold Up in the Air” discussed the pending appeal of Cornell v. 350 West 51st St. Realty LLC, a case which concerned whether a plaintiff could get to a jury on her claim that indoor residential mold caused her respiratory injuries. We pointed out that the Court of Appeal’s questioning at oral argument portended a potential reversal and defeat for mold plaintiffs. And that is in fact what has happened. The Court of Appeals (2014 NY Slip Op 02096) granted the defendant landlord and coop summary judgment, and dismissed the bodily injury claims of the Cornell plaintiff. The decision is a difficult read, but the lessons yielded are clear.

Some background: the plaintiff in Cornell alleged that throughout her occupancy of a co-op apartment, the co-op building's "basement was in a wet, damp, musty condition"; that the radiator in her apartment's living room "leaked on numerous occasions" and "continued to leak and also released steam into the Apartment" despite the co-op’s attempts at repair; that in July 2003 she first noticed and notified the co-op that "there was mold growing in the [apartment's] bathroom," but the co-op "ignored" this condition; and that beginning in the first week of October, 2003, the landlord and/or its contractor performed demolition and/or construction work in the basement of the co-op building, permitting noxious dust, dirt, mold and debris to be released, which infiltrated her first-floor apartment.  What were her injuries? The Cornell plaintiff claimed that "[i]mmediately after" the landlord and/or its contractor performed the work in the basement, she became dizzy, disoriented, covered with rashes, unable to breathe, light-headed, congested, experienced tightness in her chest, had severe headaches, had shortness of breath, had a metallic taste in her mouth, and experienced other physical symptoms.

At the Frye hearing (brought on by defense motion), the defendants used an immunologist/epidemiologist who assessed plaintiff’s claim that "a significant portion of her physical and psychological problems is related to adverse reactions stemming from exposures to molds," and, after review of her medical records and the relevant science, opined with reasonable medical certainty that there was no relationship between the medical problems experienced by Ms. Cornell and exposures to molds (i.e., no specific causation). The defendants’ expert also opined that a causal relationship between indoor residential mold and Ms. Cornell’s injuries was not generally accepted in the medical community (i.e., no general causation).

Plaintiff’s medical expert opined to the contrary, and pointed to numerous studies that supported an association between indoor residential mold and illness. But as the Court of Appeals explained, “studies that show an association between a damp and moldy indoor environment and the medical conditions that [plaintiff's medical expert] attributes to Cornell's exposure to mold (bronchial-asthma, rhino-sinusitis, hypersensitivity reactions and irritation reactions of the skin and mucous membranes) do not establish that the relevant scientific community generally accepts that molds cause these adverse health effects.” (The causation/association battle line was explained in detail in our January 16 entry.)

The Court of Appeals could have ended its decision there (since without proof of general causation, plaintiff must be turned away), but it went further: even assuming that the plaintiff in Cornell demonstrated general causation, she did not show the necessary specific causation. (For a theory of causation to survive under Frye, both prongs of causation – general and specific – must be proved.) The Court of Appeals decision alludes to the fact plaintiff failed to show specific causation because she did not set forth “exposure to a toxin, that the toxin is capable of causing the particular illness and that plaintiff was exposed to sufficient levels of the toxin to cause the illness (specific causation)." The Cornell plaintiff’s expert had tried to prove specific causation by differential diagnosis. The Court of Appeals dismissed that attempt: “Differential diagnosis, of course, 'assumes general causation has been proven'". This last pronouncement is of incredible importance to the defense of toxic tort claims, as the number of clinicians who use differential diagnosis to support an opinion on causation is legion.

This Firm already has had opportunity to use the Cornell decision at the trial court level to our client’s advantage (see Benton v 80 Cranberry Street, in “Publications” above).  Absent a major change in the science of mold illness, there is every reason to believe the next few years will see many more summary judgment decisions in favor of land owners and against mold plaintiffs.

                                                        APX 8/6/14
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Adjacent Landowner Liability for City Sidewalk Defects, by Arthur Xanthos

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For nearly a decade, the New York City Administrative Code has imposed on landowners the responsibility of maintaining the sidewalks adjacent to the landowner's premises.  Thus, a passerby who slips and falls on the sidewalk outside your building can look to the building owner as a possible defendant.


By definition, condominium boards are not landowners.  So if a passerby slips and falls on a sidewalk adjacent to a condominium building, who is the adjacent landowner for purposes of liability?


This Firm has seen plaintiff counsel sue the condominium itself, which we believe eventually results in a dismissal because the condominium is not a landowner and the NYC Administrative Code provision is interpreted strictly.  So that leaves one other possibility on whom to impose liability for a sidewalk defect -- the owner of the particular condominium unit closest to the site of the trip and fall (occupied most likely by a ground floor commercial tenant of the unit owner).


In light of uncertain litigation with these quirky facts, ground floor condominium unit owners who rent out their unit should obligate the tenant to maintain and repair the sidewalk adjacent to the unit, and to defend and indemnify the unit owner (and the condominium board of managers) in the event of a lawsuit.  We note that while many form leases obligate tenant to keep the adjacent sidewalk clean, they leave unclear the responsibility for sidewalk maintenance and repair.


Of course, the condominium unit owner should also insist on proof that the tenant has adequate liability insurance and has named the unit owner (and, of course, the board of managers) as additional insureds on the insurance policy.
     

                                                                                                 -APX 1/19/14
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