Capitol Place I Associates L.P. v. George Hyman Construction Co.

Citations: 673 A.2d 194; 1996 D.C. App. LEXIS 46; 1996 WL 125997Docket: 95-CV-75 & 95-CV-282

Court: District of Columbia Court of Appeals; March 21, 1996; District Of Columbia; State Supreme Court

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Appellants Capitol Place I Associates L.P. and 555 New Jersey Avenue, Inc. filed a demand for arbitration against appellee George Hyman Construction Company, related to the construction of a 12-story office building known as Capitol Place I. The appellee sought a preliminary injunction, arguing that the arbitration demand was barred by the statute of limitations. The appellants contended that the statute of limitations issue should be resolved by an arbitrator and claimed that the limitations period had not expired due to the "discovery exception," as established in Ehrenhaft v. Malcolm Price. The trial court rejected these arguments and granted the injunction, which led to this appeal. 

The contract between the parties, established on December 13, 1982, stipulated arbitration for claims arising from the contract but also stated that arbitration demands must be made within the applicable statute of limitations. The building was substantially completed by 1984, with ongoing issues related to water infiltration noted by the appellant and its representatives over the years. Complaints about leaks began in 1986 and continued through 1990, with visible signs of water damage documented, including efflorescence on the building’s facade and reports of damaged carpets and mold growth. The court ultimately affirmed the trial court's ruling.

Appellant became aware of masonry distress in the building in 1987, leading to the addition of expansion joints by appellee that same year. Despite these efforts, appellant reported further issues with facade cracking and improper flashing in 1988, prompting the hiring of an independent expert. In 1990, after more leakage problems, appellant engaged another expert for extensive repairs. An engineer's inspection in October 1992 revealed significant design and construction deficiencies. In 1993, appellant inquired about the issues with BFK, which had divested its interest in the building; BFK defended itself by stating that the problems were known for over a decade and that a deliberate choice had been made to avoid litigation costs. In February 1994, appellant sent the engineer's report to appellee, requesting assistance, but on March 15, 1994, appellee denied responsibility. Subsequently, on April 29, 1994, appellant demanded arbitration. In response, appellee sought an injunction to prevent arbitration, citing an expired statute of limitations. The trial court initially denied appellant's motion to dismiss based on the argument that the statute of limitations should be resolved by the arbitrator. However, following limited discovery, the trial court granted appellee's motion for summary judgment on the statute of limitations issue on January 3, 1995, and enjoined arbitration. The legal question arose regarding whether the court had the authority to decide the statute of limitations or if it should have deferred to the arbitrator. The excerpt references the U.S. Supreme Court's stance that arbitrability is a judicial matter unless explicitly stated otherwise by the parties, emphasizing the court's role in determining the obligations to arbitrate disputes.

The document addresses the issue of arbitrability concerning a contract clause with a time limit for arbitration claims. It references *PaineWebber Inc. v. Hartmann*, where the Third Circuit ruled that a contractual arbitration clause explicitly limited claims to those filed within six years of the triggering event. This ruling established that parties can limit their obligation to arbitrate based on time constraints. In the current case, the court finds the arbitration provision ambiguous, particularly regarding when the statute of limitations begins to run. Despite recognizing the parties' intent to end the duty to arbitrate once the limitations period expires, the lack of specificity in the contract prevents a clear determination of arbitrability. The court emphasizes the importance of clarity in arbitration agreements to encourage parties to enter into such agreements without fear of unintended extensions of their obligations. Ultimately, the court concludes that the question of whether the statute of limitations has expired falls within judicial purview, affirming the lower court's decision to deny arbitration.

The statute of limitations is examined to determine if the appellant can utilize the "discovery exception" after a summary judgment was granted. The standard of review for this appeal mirrors that used by the trial court: summary judgment is affirmed if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. When evaluating the case, the record must be viewed favorably for the opposing party. 

For claims in contract or tort, the applicable statute of limitations is three years from the date the right to maintain the action accrues. In contract cases, accrual occurs upon the initial breach, while in negligence cases, it typically occurs when the injury is sustained. The "discovery exception" allows tolling of the statute of limitations when a party did not know, and could not reasonably know, of the cause of action. This exception stipulates that a cause of action accrues when the plaintiff is aware, or should be aware through due diligence, of the injury, its cause, and some evidence of wrongdoing.

The discovery exception originated in medical malpractice cases, notably involving the discovery of a foreign object left in a patient post-surgery. Its application extends to legal malpractice as well. A crucial aspect of this exception involves the necessity for justifiable reliance on the alleged transgressor or other circumstances indicating that the party seeking the tolling effectively contributed to the harm remaining undiscovered.

In the case of Ehrenhaft, the court allowed a homeowner to utilize the discovery exception against a builder and architect after experiencing ongoing construction issues with a patio room addition completed in 1977. Despite repairs made through 1979, significant problems only became evident in early 1982, leading to a lawsuit filed in September 1982 for breach of contract and negligence. The builder and architect attempted to dismiss the case based on the statute of limitations but the court found the discovery toll applicable, emphasizing the reliance of lay individuals on construction professionals and the reasonableness of the homeowner's actions in seeking oversight. The court noted that the latent defects manifested years later supported the discovery exception.

In contrast, in the current case involving a sophisticated national organization as the appellant, the court found the discovery rule inapplicable. The appellant, in partnership with a knowledgeable commercial developer, had ample opportunity to identify defects early on, as signs of problems were apparent. Despite attempts to resolve issues informally and the financial capability to pursue litigation, the appellant delayed action until after filing for arbitration. The court determined that the defects were not as latent as in Ehrenhaft, and that a reasonable party would have acted sooner to investigate the causes of the problems. An impartial jury could not reasonably conclude otherwise.

Appellant had actual knowledge of damage to its building over three years prior to filing its demand for arbitration. The trial court noted that evidence clearly indicated the owners recognized a viable cause of action against the builder due to visible problems such as water infiltration and facade cracks, which were discussed with the builder. The owners' claims of ignorance regarding the extent of damage until receiving an engineer's report were rejected; the discovery rule does not allow a plaintiff to delay filing a suit while awaiting further information about injuries already known. The judgment of the trial court was affirmed. Additionally, the court addressed the issue of costs and noted that it would not revisit its prior interpretations of relevant case law. The applicability of the discovery rule in commercial development contracts varies by jurisdiction, with some states rejecting it while others permit it under certain conditions.