Oral Argument Preview: Constitutionality of the Retroactive Application of Ohio’s Construction Statute of Repose. Oaktree Condominium Association, Inc. v. The Hallmark Building Co.

Update: On May 14, 2014 the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument in this case here.

On October 9, 2013, the Supreme Court of Ohio will hear oral argument in the case of Oaktree Condominium Association, Inc. v. The Hallmark Building Company, et al., 2012-1722. At issue in this case is whether the retroactive application of Ohio’s construction statute of repose, R.C. 2305.131, is constitutional as applied, and, if so, what is a reasonable period of time for plaintiffs like Oaktree, whose claims had accrued before the statute became effective, to file suit.

Case Background

In around 1989, after the original developer ceased to exist, Hallmark assumed the development and construction of Oaktree Condominiums. In October of 1990, Hallmark completed the construction of the seven-unit condominium project.

In 1999, significant drywall cracks appeared in the walls and ceiling of a single condominium unit.  Oaktree made repairs to the unit, but in 2003, several other unit owners began observing similar symptoms of settling in their units, such as cracks in the walls and doors that were becoming misaligned. After some investigation, it was determined the instability was caused by insufficient reinforcement of the footers—a part of the building’s foundation. The city code required a depth of thirty-six inches, but the original developer had placed the footers as little as seventeen inches beneath the surface in some places. The expert reports detailing these findings were presented to the Oaktree Condominium Association on October 27, 2003. The Association authorized repairs, but ultimately lacked the money to completely fix the unstable foundation.

On December 16, 2005, fifteen years from the completion of the condominiums, eight months after the effective date of R.C. 2305.131, (April 7, 2005), and more than two years after being put on notice of the cause of the problems, Oaktree filed suit against Hallmark asserting various claims for defective construction of the condominiums. The suit was dismissed without prejudice and refiled.

At trial, Hallmark argued that R.C. 2305.131 barred Oaktree’s claim. The trial court found that the statute of repose did not apply to this case.  The jury returned a verdict for Oaktree. On appeal to the Eleventh District Court of Appeals, the court found that Oaktree’s claims were covered by the statute of repose, and were filed past the ten-year period set forth in the statute.  The court remanded the case back to the trial court to determine whether the retroactive application of the statute of repose was constitutional as applied to Oaktree’s claims.

On remand, the trial court held that the application of the statute was constitutional and granted summary judgment to Hallmark. In the second appeal of this case, the Eleventh District Court of Appeals affirmed the summary judgment in favor of Hallmark and held that although R.C. 2305.131 could not be applied retroactively to Oaktree’s claim, because its cause of action had already accrued before the effective date of the statute, Oaktree did not file its claim within a reasonable time, which the appeals court deemed to be two years after being placed on notice of the likely cause of the damage.

Key Precedent

Adams v. Sherk, 4 Ohio St.3d 37 (1983) (a statute may shorten the period of time in which a claimant may seek a remedy as long as the claimant is afforded a reasonable time to pursue the claim; the reasonable period to pursue a medical malpractice claim is one year)

Groch et al. v. General Motors, Corp., 117 Ohio St.3d 192 (2008) (the retroactive application of Ohio’s products liability statute of repose, R.C. 2305.10, is unconstitutional as applied in this case because it afforded the plaintiff less than two years to file a claim)

Ohio Constitution, Article II, Section 28 (the General Assembly shall have no power to pass retroactive laws)

R.C. 2305.131 (no cause of action to recover damages that arises out of a defective and unsafe condition of an improvement to real property can accrue later than ten years from the date of the completion of such improvement. If the condition is discovered within the ten year period but there is less than two years till the ten year period expires, the plaintiff shall be afforded two years from the discovery of the condition to file a claim)

R.C. 2305.09 (statute of limitations for a construction defect claim is four years)

R.C. 2305.10 (no cause of action based on a product liability claim shall accrue against the manufacturer or supplier of a product later than ten years from the date the product was delivered to its first purchaser)

Oaktree’s Argument

Oaktree argues that the statute of repose, R.C. 2305.131, is a substantive law and not remedial because it takes away its vested right to file a claim; therefore, under Ohio Constitutional, Article II, Section 28, the statute has no power to take away that vested right retroactively. The statute may extinguish the opportunity for a right to vest, but it cannot extinguish one that has already vested.  Oaktree further argues that the remedial label the General Assembly put on the statute of repose does not change it from being a substantive law.

Oaktree argues that R.C. 2305.131 is unconstitutional as applied because it extinguishes an accrued right of action without affording Oaktree a reasonable time within which to file its claim. Two other cases dealing with this problem in the context of statutes of repose—Groch (products liability) and Adams (medical negligence)–set up a framework for determining the reasonable time period for filing a claim after the retroactive application of a statute of repose. In both Adams and Groch, the court looked at the applicable statute of limitations to determine the reasonable time period of filing a claim. Therefore, the Eleventh District incorrectly applied the two-year time period held in Groch instead of looking at the applicable four-year statute of limitations for construction claims. Oaktree argues that the court mistakenly applied the outcome of Groch without applying the analysis and that products liability claims and construction claims should not be treated the same.

Hallmark’s Argument

Hallmark argues that Oaktree had a reasonable period of time in which to file its claim. The two-year period of time applied by the court was reasonable because it is most consistent with the language of the statute, with the Court’s holding in Groch, and it upholds the purpose and policy behind the statute, which is to “to promote a greater interest than the interest underlying the general four year statute of limitation,” to strike a balance between the rights of tort claimants and construction contractors, and to prevent stale claims.

Specifically, Hallmark points to the fact that 15 years had passed since Hallmark had any control over the foundation and soil and that Hallmark had no control over any intervening causes that could have contributed to the condition. Further, Hallmark points to the fact that both building inspectors originally assigned to project and the masonry subcontractor are all deceased, thus seriously hampering its defense.

Lastly, Hallmark argues that Oaktree’s assertion that the statute of repose is substantive law and not remedial is fruitless. Specifically, Hallmark looks at the language of the General Assembly which states that the statute of repose would be applied in a remedial manner regardless of when a cause of action accrues.

Oaktree’s Proposed Proposition of Law

Ohio’s construction statute of repose, codified in R.C. 2305.131, as applied to Oaktree, bars Oaktree from pursuing a substantive, vested right in violation of the Ohio Constitution, Article II, Section 28.

Amicus Brief in Support of Hallmark

The Ohio Alliance for Civil Justice (OACJ) filed an amicus on behalf of Hallmark and argues that the Court needs to affirm the judgment of the Eleventh District in the interest of predictability and precedent.  In particular, the OACJ argues that the two-year time period applied to an accrued products liability claim in Groch should also apply to improvements to real property because the two statutes of repose are nearly identical on this point, and the purpose behind both statutes of repose is to decrease the likelihood that defendants would be forced to litigate stale claims.

Student Contributor: Cameron Downer

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