What’s on Their Minds: Retroactive Application of the Construction Statute of Repose. Oaktree Condominium Association, Inc. v. The Hallmark Building Company, et al.

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

On October 9, 2013, the Supreme Court of Ohio heard 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 unconstitutional as applied to Oaktree.

Case Background

The seven unit Oaktree Condominium project was completed by Hallmark in 1990.  In 1999, cracks began to appear in the walls of a single unit. By 2003, other unit owners began to notice similar cracks and other symptoms of settling in their units. An investigation was begun. On October 27, 2003, a structural engineer hired by the Association reported at a meeting of the Association that these problems were caused by footers that had been placed at an insufficient depth, in violation of the building code. The city code required a depth of thirty-six inches, but in some places the footers were as little as seventeen inches beneath the surface.

On October 27, 2003, there was no construction statute of repose.  R.C. 2305.131 was enacted effective April 7. 2005, establishing a ten-year statute of repose.  The statute of limitations for a construction defect is four years.

Procedural Posture

The plaintiff filed suit in this case on December 16, 2005.  Hallmark argued that the statute of repose, 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 appeals 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. Read the oral argument preview of this case here.

Key Statutes and Precedent

R.C. 2305.131 ( Construction statute of repose. 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 until 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)

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., 2008-Ohio-546 (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)

At Oral Argument

Oaktree’s Argument

2305.131 is unconstitutional as applied to Oaktree in this case because it extinguished a cause of action that had accrued and vested prior to the effective date of the statute. The unit owners knew they had a cause of action on October 27, 2003, at which time there was no statute of repose. As of that date, the owners had four years to file suit under the existing statute of limitations. The statute of repose, effective April 5, 2005, was unconstitutional as applied to Oaktree because it extinguished a vested, accrued claim, and did not give the claimants a reasonable time in which to file suit. Retroactive application of the statute of repose would have lopped off almost two and a half years from the then-existing statute of limitations.  A two year period in which to file a claim does not work for this claim with a four year statute of limitations. Based on analogous precedent from the high court, a reasonable time in which to file suit after the enactment of the statute of repose would have been four years, which was the underlying statute of limitations. Otherwise, as applied, R.C. 2305.131 violates the right-to-remedy provision of the Ohio Constitution.

Hallmark’s Argument

Even assuming Oct 27, 2003 was the accrual date, the issue still is what limitations can be place on a vested right.  In this case, two years from the date the statute of repose went into effect was a reasonable time in which to file suit, as the court of appeals determined, because that time takes into account the interests of all concerned. The language of the statute of repose itself says that if the defect is discovered in year eight or nine of the ten year period, the plaintiff gets two years to file suit. Although that provision does not apply to this case, two years from the discovery of the defect should also be deemed a reasonable period in which to file in this case. Additionally, the legislature stated that the policy behind the statute of repose was “to promote a greater interest than the interest underlying the general four year statute of limitations,” to strike a balance between the rights of tort claimants and construction contractors. If the Court says that a reasonable time in which to bring suit is the underlying statute of limitations—here four years—it negates the purpose of the statute of repose.  While the statute of repose addressed a substantive right, it did not extinguish it—it just provided a limited time to seek redress for that right. In this case the statute was not unconstitutional as applied to Oaktree.

What Was on Their Minds

The Interplay Between the Statute of Limitations and the Statute of Repose

This was on everyone’s mind.

If the Court were to give the plaintiff four years as a reasonable time in this case, that would be seventeen years from the time of completion, noted Justice O’Donnell.  How could the Court reconcile that with the statute of repose?

If the plaintiff had two years from the time the defect was discovered, shouldn’t the suit have been filed by October 27, 2005, asked Justice Lanzinger? (suit was filed December 16, 2005).

Accrual

Did the claim accrue when the owners discovered the situation, asked Justice Lanzinger?

When a homeowner sees a crack in the basement floor, does he know anything other than he has a crack in the basement floor, asked Justice O’Neill? Isn’t a fair argument to be made that the Condo Association is not on notice of a defect in workmanship until someone comes and tells them this crack in the floor was caused by a defect in workmanship? Isn’t that logically when the cause of action would begin?

What is a Reasonable Time in Which to Bring Suit? And Who Decides That?

Why should the Court go with four years as a reasonable period of time to bring the claim when there is language from the uncodified law that shows that the legislative intent was  “to promote a greater interest than the general four year statute of limitations,” asked Justice French? Should there even be a bright line rule? Or just a case by case factual determination? And who has the burden to show reasonableness? And what is that burden?

Who makes this decision, and how is that decision made, asked Justice O’Neill? The court of appeals on its own? Without input from the trial court on that issue?

Why should two years be deemed a reasonable time to file suit, asked Justice Lanzinger?

Would a bright line rule be more useful to the bench and bar than a case by case determination of reasonableness, asked Chief Justice O’Connor?

In a key question of the day, Justice O’Donnell asked how Oaktree would  know going in, since it had no statute of repose, how quickly it must file suit?

Extinguishment of a Vested Right

Can the General Assembly march in two years after a claimant discovers a construction defect and say “we’ve decided you no longer have a cause of action,” asked Justice O’Neill.  Isn’t that a retroactive application of a substantive right? How is such a statute remedial?

As long as we use the statute of repose and tack on an additional opportunity to file a claim, however long that turns out to be, does that defeat the claim of an extinguishment of a right, asked Chief Justice O’Connor, in another key question of the day. Isn’t that right preserved, but just temporally affected?

Construction Defects, Products, Medical Negligence

Should there be a different analysis for construction defects than for other areas of law in which statutes of repose have been enacted, asked Justice O’Donnell?

The Groch case

Should the Court follow Groch  in this case, asked Justice O’Donnell?

The two years in Groch  was related to a products liability claim, said Chief Justice O’Connor. Why not use a four year rule of reasonableness in this case?  The intent of imposing an “out” in Groch wasn’t to duplicate the underlying statute of limitations, she mused, but to preserve a right to bring an action.

How it Looks from the Bleachers

To Professor Bettman

First, kudos to both counsel—this case was well and very professionally argued.  Hallmark’s counsel in particular conceded points where he really had to, but stuck to his guns on the key issue.

This Court has been sympathetic to statutes of repose (see, e.g., Ruther v. Kaiser, 2012-Ohio-5686 ), but also careful about unfair retroactive application  (see e.g. Groch). To me, this looks like a win, although not necessarily unanimously, for Oaktree, mainly because of issues raised by Justices O’Donnell and O’Neill.  When the defect in this case was discovered (although Justice Lanzinger pressed on whether that was the accrual date, defense counsel eventually seemed to concede that it was), there was no statute of repose, and Oaktree had four years to file suit under the construction defect statute of limitations, and more than two years of that got chopped off with the enactment of the statute of repose.

All the justices who asked questions clearly agreed that in a case with a retroactive application of a new statute, a claimant must have a reasonable period in which to bring suit.  There are several ways this could go.  Because there aren’t likely to be many cases similarly situated to Oaktree’s—where the claim accrued when there was no statute of repose in effect—a bright line four year rule of reasonableness, to match the existing statute of limitations, would be the simplest and easiest way out. And that would be consistent with the holdings in both Groch and Adam, in which the period of reasonableness matched the underlying statute of limitations of that particular type of claim. Chief Justice O’Connor suggested this approach. I also think this would be a better solution than Justice French’s suggested case by case determination of reasonableness.  Justice O’Neill is clearly poised to go this way, and Chief Justice O’Connor seemed to be. Justice Pfeifer asked no questions, but notoriously dislikes statutes of repose.

Hallmark’s best argument is the uncodifed statement of legislative intent in the statute of repose “to promote a greater interest than the interest underlying the general four year statute of limitation.”   Justice French in particular seemed to find that language important. While it was certainly wise of the legislature to include that language going forward, I don’t think it will prove the winning rationale in this case of retroactive application.

To Student Contributor Cameron Downer

Looks like a win for Oaktree .

The justices’ questions hovered around how, if at all, the statute of repose could be applied to Oaktree retroactively. Justice French questioned whether or not the court should make a bright line test or whether it should apply a fact based “reasonableness” standard. Justice Lanzinger questioned why two years would be appropriate. In addition, Chief Justice O’Connor made note to distinguish construction claims and the product liability claim that was at issue in Groch and questioned why the two different claims should be treated the same in respect to the retroactivity of a statute of repose. Justice O’Neill in particular made it known that he thinks the retroactive application takes away Oaktree’s vested right to remedy and is therefore unconstitutional as applied.

Overall, none of the justices seem wholly to accept Hallmark’s argument that the two year reasonableness period used in Groch would be appropriate in this case.

 

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