Harmony at Madrona Park Owners Ass'n v. Madison Harmony Development, Inc.

Citation: 177 P.3d 755Docket: 58416-2-I

Court: Court of Appeals of Washington; February 25, 2008; Washington; State Appellate Court

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Ledcor Industries, Inc. (Ledcor), the general contractor for a 25-building condominium project, was sued by Harmony at Madrona Park Owners Association for construction defects. Ledcor settled with the owner/developer, Madison Harmony Development, Inc., and subsequently sued subcontractor Margaux's Marine Graphics, Inc. (Serock) for breach of contract and indemnification related to defects in the project. The trial court found that Serock breached its subcontract concerning the exterior trim of eleven of the thirteen buildings it worked on, awarding damages to Ledcor for breach of contract and indemnification for four of those buildings, but barred claims for the other four due to the statute of limitations. Serock contested that all claims were time-barred, arguing that the six-year statute of limitations should start from the date of substantial completion of the buildings rather than when the work was performed. The court agreed with Serock, ruling that Ledcor's breach of contract claims were indeed time-barred.

The statute of limitations for construction defect cases may begin on either the date of substantial completion or upon breach, which requires statutory interpretation. Ledcor argues that RCW 4.16.310 allows a claim to accrue only after the later of substantial completion or termination of services, irrespective of when the breach occurred. RCW 4.16.310 mandates that any action not accrued within six years after substantial completion or termination is barred. However, RCW 4.16.320 clarifies that this does not extend the time allowed for filing actions. Thus, RCW 4.16.310 serves as a statute of repose, imposing a maximum timeframe for claims to arise, while claims can accrue before this period begins.

The distinctions between statutes of limitations and statutes of repose are critical; a statute of limitations restricts the time to file a claim after it has accrued, while a statute of repose eliminates the right of action after a specified time, regardless of whether the injury has occurred. In this case, claims must be filed within six years of accrual according to RCW 4.16.040, independent of the statute of repose.

Ledcor's breach of contract claims against Serock were first raised in November 2004, but Serock ceased work in May 1998. Therefore, the statute of limitations expired by May 2004, six months before Ledcor named Serock as a defendant. Consequently, since the limitation period elapsed before the statute of repose, Ledcor's claims are time-barred.

RCW 4.16.310 maintains a six-year limitation period for breach of contract claims, with two potential exceptions for Ledcor's claims against Serock: the applicability of RCW 4.16.326(1)(g) or the discovery rule. However, neither is applicable. RCW 4.16.326(1)(g) does not alter the statute of limitations or redefine when claims accrue. The legislature clarified that the applicable contract statute of limitations expires six years after substantial completion of construction, irrespective of discovery. The Supreme Court has ruled that while the discovery rule can apply to breach of contract claims, it does not apply retroactively to claims involving RCW 4.16.326(1)(g) unless it is pleaded as a defense. In this case, Serock was not required to plead this defense because Ledcor did not assert that the defects were latent. Ledcor's claim that it relied on a misinterpretation of the law does not excuse its failure to plead latency, as affirmative defenses must be explicitly raised by the party asserting them.

Ledcor's reliance on the discovery rule was rejected, as it would undermine Serock's affirmative defenses related to latent defects, which were not properly alleged in Ledcor's initial pleadings. The court determined that Ledcor's breach of contract claims against Serock were barred by the six-year statute of limitations under RCW 4.16.040, which requires actions on written contracts to begin within six years of their accrual. Consequently, the claims were time-barred, having been made more than six years after the alleged breach, resulting in the reversal of the breach of contract judgment against Serock.

Regarding indemnity, Serock challenged the trial court's damage award as excessive, claiming it included repair costs for work not performed by Serock. The court clarified that the reasonableness of a damage award is a factual matter subject to abuse of discretion review. Despite the breach of contract claims being time-barred, the indemnity award was assessed based on the same reasoning as the contract damages. The trial court determined the total repair cost for defects within Serock's scope was $255,000, which was reduced to $127,500 for seven out of thirteen buildings, and further decreased by 25 percent for work not within Serock's scope, leading to a final award of $95,625 for breach of contract. An indemnity award of $57,375 was granted for four buildings where the statute of limitations had expired.

The court affirmed the indemnification damages for the four buildings and noted that while Ledcor could not recover under a breach of contract theory, it could still seek indemnification for repairs on the other seven buildings, for which the breach of contract damages were incorrectly awarded.

Serock argues that the trial court incorrectly declined to apply an offset to the damages awarded to Ledcor to avoid double recovery, asserting that Ledcor's damages included work from other subcontractors with whom Ledcor settled before trial. However, substantial evidence indicates that Ledcor's damages stemmed from Serock's defective work, with no evidence showing Ledcor had previously recovered for those repairs. The court's denial of the offset is affirmed.

In relation to discovery sanctions, Serock claims the trial court erred in denying its request to sanction Ledcor for allegedly evasive discovery responses under Court Rule (CR) 26. Serock asserts it was unaware of Ledcor's claims regarding window trim until Ledcor filed a summary judgment motion. The court's decision on imposing sanctions is reviewed for abuse of discretion. Serock's interrogatories were aimed at understanding inconsistencies in Ledcor's work, to which Ledcor responded by referencing four expert reports. Serock contends only one of these documents was responsive, yet only the Neutral Panel Building Report was accepted as trial evidence. Serock did not request more specificity from Ledcor, and although the Neutral Panel Report lacks explicit allocation of responsibility, it describes construction defects, including issues with the window trim, which Serock worked on for multiple buildings. The court did not abuse its discretion in denying Serock's request to bar Ledcor's breach of contract claims regarding the window trim.

Serock further claims Ledcor waived its claims concerning the vertical wood trim installation, citing testimony that an individual believed to work for Ledcor directed a change in installation that omitted caulking. Serock argues this, combined with Ledcor's routine inspections and approvals of its work, demonstrates waiver. Waiver is defined as the intentional relinquishment of a known right, requiring clear conduct indicating such intent. The determination of whether waiver occurred is a factual question unless only one conclusion is reasonable.

John Putnam, Ledcor's expert, testified that the wood trim was poorly constructed, with inadequate caulking and unprimed ends after cutting. The subcontract required written change orders for scope modifications, but no such documentation was provided. Ledcor's corporate counsel confirmed a policy for written change reports that was not followed here. The subcontract clarifies that payment does not imply acceptance of work. The trial court ruled that Ledcor did not waive claims about the window trim.

Serock challenged the trial court's refusal to dismiss based on laches, which requires a plaintiff to know the facts of the cause, delay unreasonably in bringing the action, and for the defendant to suffer material prejudice. Although Ledcor was aware of the relevant facts in May 2002, the court found an 18-month delay was not necessarily unreasonable, and Serock failed to demonstrate actual prejudice despite claiming it could not defend its work.

Serock also contested the trial court's award of attorney fees to Ledcor for the period from May 1, 2002, to October 31, 2004. Serock argued it had no duty to defend Ledcor due to untimely defense tender and that it should not be liable for fees incurred before that tender. The court affirmed Serock's liability for pre-tender costs, noting that Serock did not provide legal authority to support its claims. Lastly, Serock argued the fee award was excessive due to inclusion of fees from defending other subcontractors' work, leading the court to find the award arbitrary.

The trial court found that Ledcor incurred $339,943 in reasonable attorney fees and costs from May 1, 2002, to October 30, 2004, and awarded Ledcor $26,149.51 from Serock, calculated as a pro rata share based on 13 subcontractors involved in the litigation. However, the court did not provide findings justifying this calculation method and Ledcor did not argue that segregating fees specific to Serock's work was impossible. Ledcor acknowledged that most defense legal services pertained to multiple subcontractors but failed to demonstrate why fees related solely to Serock's work could not be identified. Consequently, the method used by the trial court to determine attorney fees lacks evidentiary support, leading to the reversal of the fee award for the specified period. Both parties sought attorney fees for the appeal, but since there was no substantially prevailing party, the request was denied. The decision was partially reversed and partially affirmed, with concurrence from Judges Dwyer and Cox.

In Ballard Square Condo. Owners Ass'n v. Dynasty Const. Co., the Washington Supreme Court addressed the statute of limitations concerning claims associated with construction improvements, emphasizing that a claim accrues prior to substantial completion. Citing multiple precedents, including Phillips v. King County and Pepper v. J.J. Welcome Constr. Co., the court highlighted that the statute of limitations begins when the claim accrues, not necessarily upon completion of the project. The case of 1000 Virginia Ltd. P'ship v. Vertecs Corp. further clarifies that substantial completion may be evaluated on either a phase-by-phase or project-as-a-whole basis, although this distinction was contested in Ledcor's conditional review request. 

Serock's motion to strike Ledcor's reply brief was granted due to the brief addressing issues not raised in the cross-appeal, specifically concerning when the statute of limitations begins and the applicability of the discovery rule. The court also considered the proportion of buildings Serock worked on, applying a 50% reduction in the award to reflect differences in building sizes and ultimately calculated the award based on the percentage of the buildings involved. The document references several other cases and rules, including CR 8(c) and RAP 10.1(c), which further contextualize the court's decisions and procedural considerations.