Northeast Knox Utility District v. Stanfort Construction Co.

Citations: 206 S.W.3d 454; 2006 Tenn. App. LEXIS 322; 2006 WL 1328779Docket: E2005-01284-COA-R3-CV

Court: Court of Appeals of Tennessee; May 16, 2006; Tennessee; State Appellate Court

Original Court Document: View Document

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The Court of Appeals of Tennessee at Knoxville addressed the case of Northeast Knox Utility District versus Stanfort Construction Company and others, which involved a direct appeal from the Circuit Court in Knox County. The trial court had granted summary judgment to the defendants, ruling that the statute of limitations had expired on the plaintiff’s claims. However, the appellate court vacated the trial court's judgment and remanded the case for further proceedings.

The background reveals that a contract was established on April 9, 1999, between Southern Constructors, Inc. and Northeast Knox Utility District for constructing a raw water intake. Richard Phillips signed the contract on behalf of NEKUD, and Robert G. Campbell Associates was designated as the Project’s engineer. Engineering reports indicated the presence of rock at specific depths, but during excavation work subcontracted to Stanfort, the actual rock was found at a higher elevation than anticipated. Stanfort sought additional compensation for the extra excavation required due to these discrepancies.

Despite letters acknowledging the claims for extra compensation, including one from Campbell and another from Phillips, Stanfort completed the excavation work by November 17, 1999, without receiving the additional payment. By November 2000, Stanfort realized that NEKUD and Southern had closed the contract without compensating them for their claim. Subsequently, on December 20, 2000, Stanfort initiated arbitration against NEKUD and Southern for unpaid work, which led NEKUD to file a complaint to block the arbitration proceedings.

Stanfort initiated a Counterclaim against NEKUD and a Cross-Complaint against Southern, seeking $128,803.00 in damages, interest, and attorney’s fees. After filing an Amended Answer and Counter-Claim that removed the Cross-Claim against Southern, Stanfort applied to amend the Counter-Complaint and add parties, which the Circuit Court approved. This led to the addition of Campbell and Phillips, with allegations of reckless or negligent misrepresentation and fraudulent concealment against all three counter-defendants. 

On January 21, 2004, NEKUD and Phillips filed a Motion for Summary Judgment, asserting NEKUD's immunity under the GTLA and Stanfort's failure to show justifiable reliance. The court granted the motion for NEKUD but denied it for Phillips, who later argued that Stanfort's claims were barred by the statute of limitations (Tenn. Code Ann. § 28-3-105). Stanfort contended that Phillips had not properly raised this defense in his Answer, as required by Tenn. R. Civ. P. 8.03. However, Phillips was allowed to amend his Answer to include the statute of limitations defense, which ultimately led to the court granting his Motion for Summary Judgment.

On March 15, 2005, Campbell sought to add the statute of limitations defense and also filed for Summary Judgment, which the court granted, ruling that the statute of limitations had expired. The appellate issues include: 1) Whether Phillips and Campbell waived the statute of limitations defense by not including it in their Answers; 2) Whether a material fact dispute existed regarding the accrual of Stanfort’s claims; and 3) Whether Stanfort’s Second Amended Counter-Complaint relates back to the original filing date.

The standard of review for summary judgment is de novo, with no presumption of correctness for the trial court's ruling. The appellate court must determine if there are genuine issues of material fact and whether the moving party is entitled to judgment as a matter of law, viewing evidence favorably towards the nonmoving party. Stanfort claimed waiver of the statute of limitations defense by Phillips and Campbell due to its late introduction after discovery, arguing that the trial court erred by allowing such amendments. However, the timing of the amendments was not considered undue given the overall timeline of the case.

Stanfort had adequate notice to address the limitations defense, as the first hearing occurred about seven weeks after the issue was raised, and no claims of bad faith by Phillips and Campbell were made. The Trial Court's decision to allow amendments was affirmed, with no undue prejudice to Stanfort established. Although Stanfort claimed that the lack of notice during Terry Fortner's deposition was unfair, it failed to demonstrate how this constituted undue prejudice, as referenced in Garthright v. First Tenn. Bank of Memphis.

The applicable statute of limitations, Code Ann. 28-3-105, mandates that actions for personal or real property injuries must commence within three years from when the cause of action accrues. A cause of action for misrepresentation accrues when a plaintiff discovers, or reasonably should have discovered, their injury. Phillips and Campbell contended that Stanfort's cause of action accrued no later than January 13, 2000, when Fortner wrote a letter to NEKUD's contractor detailing difficulties and expenses exceeding $83,000 due to incorrect representations in bid documents.

Fortner's deposition indicated he believed the bid and contract documents did not accurately represent site conditions at that time. Stanfort argued that its injury was speculative until Southern closed the project and denied its claim for extra compensation in November 2000; however, the relevant legal principle suggests that a present injury, even with potential for future compensation, does not delay the accrual of a cause of action. The January 13 letter indicated specific expenses incurred, and while there was a possibility of future recovery, it did not allow Stanfort to postpone recognizing its injury. The legal precedent cited supports this view, indicating that a plaintiff cannot wait until all consequences are fully known to assert an actionable claim.

Stanfort had actual knowledge of its injury by January 13, 2000. It contends that its cause of action did not accrue until November 2000 because it was unaware that the defendants’ alleged misrepresentations stemmed from conscious or reckless deceit, and it believed the defendants had concealed their true motivations. However, a plaintiff's ignorance of the specific nature of a defendant's conduct does not delay the accrual of a cause of action. The January 13, 2000 letter and Fortner’s testimony confirm that Stanfort recognized its injury by that date. 

Stanfort further claims that it was misled by Phillips and Campbell into believing that its claims for extra compensation were under consideration, delaying its decision to file suit. This argument is supported by two letters from Campbell and Phillips acknowledging claims for additional compensation. Fortner's affidavit indicates that he received assurances from the general contractor regarding the pursuit of Stanfort’s claim. Although Stanfort did not explicitly invoke “equitable estoppel,” the court must consider whether this doctrine prevents the statute of limitations from barring the action. Equitable estoppel can toll the statute of limitations when a defendant's conduct leads a plaintiff to delay filing suit. 

To succeed on this claim, Stanfort must demonstrate that the defendants knew or should have known their actions would cause a delay, that Stanfort's reliance on those actions was reasonable, and that the delay was not due to a lack of diligence. The court is required to view evidence favorably towards Stanfort, which indicates that reasonable inferences from the letters and affidavit support multiple conclusions. Thus, there exists a genuine issue of material fact regarding whether Phillips and Campbell are equitably estopped from asserting the statute of limitations, making summary judgment inappropriate.

Summary judgment is appropriate only when the facts support a single reasonable conclusion. If there is uncertainty regarding the existence of a genuine issue for trial, summary judgment must be denied. Stanfort claims its Second Amended Counter-Complaint relates back to the original Counter-Complaint, arguing it mistakenly did not recognize NEKUD as an immune entity and that the individuals involved were the necessary parties. This argument was previously rejected by the Tennessee Supreme Court in Sallee v. Barrett. Consequently, this claim is deemed without merit. The court vacates the Trial Court's summary judgment concerning whether Phillips and Campbell are equitably estopped from asserting the statute of limitations. If not estopped, the statute of limitations began on January 13, 2000, which would bar Stanfort's claims, as they are not protected under Tenn. R. Civ. P. 15.03. The case is remanded, with appeal costs divided equally between Stanfort Construction Company and the defendants, Richard Phillips and Robert G. Campbell.