On May 14, 2014 the Supreme Court handed down a merit decision in Oaktree Condominium Assn., Inc. v. Hallmark Bldg. Co. 2014-Ohio-1937. In a 4-3 decision written by Justice O’Neill, for himself, Justices Pfeifer and Lanzinger, and Chief Justice O’Connor, the court held R.C. 2305.131, Ohio’s construction statute of repose, unconstitutional as applied to the plaintiff in this case, and also held that the plaintiff should have had four years from the time of notice of the defect to file suit. Justice Kennedy wrote the dissent for herself and Justices O’Donnell and French. The case was argued October 9, 2013.
In 1990 Hallmark completed construction of a seven-unit condominium in Willoughby, Ohio. Oaktree is the condominium owners’ association. In the fall of 2003, a resident noticed a crack in his garage wall, which was a common wall with a neighboring unit. A structural engineer was hired to look into this matter. The engineer reported that the problem was caused by footers that had been placed at an insufficient depth, in violation of the local building code, which requires foundation footers to be placed at a minimum depth of 36 inches so they will be below the frost plane. This is to avoid movement in the foundation and cracks and structural damage to the building.
Oaktree was put on notice of this defect on October 31, 2003. There was no construction statute of repose in effect at this time.
On December 16, 2005, Oaktree sued Hallmark for unworkmanlike construction. Oaktree voluntarily dismissed the suit and refiled it August 30, 2007.
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 $210,000 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 statute was constitutional as applied, 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, and the analysis of the oral argument 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 real property construction defect claim is four years)
Ohio Constitution Article II, Section 28 (General Assembly has no power to pass retroactive laws)
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 vested 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; two years is a reasonable time for plaintiff to file claim.)
October 31, 2003-Oaktree learns of the defect in the property.
April 7, 2005-real-property construction statute of repose goes into effect.
December 16, 2005-Oaktree files suit against Hallmark. Suit is voluntarily dismissed and refiled August 30, 2007.
Point of Unanimity
Although this is a 4-3 decision, all the justices agreed that Oaktree’s cause of action had accrued and vested before the effective date of R.C.2305.131, and that the retroactive application of this construction statute of repose would take away a substantive right from Oaktree. In cases where a claim has accrued when there is no statute of repose in effect, but one is subsequently enacted and the already-accrued action is filed after the statute of repose has become effective, under the court’s precedent, a plaintiff must be provided a reasonable period of time within which to bring such a claim. This led to the point of disagreement in this case.
Point of Disagreement
The justices split on what a reasonable time to file suit should be in this case, and how that should be determined.
The majority held that in circumstances like this one, the pertinent statute of limitations defines what a reasonable time to file suit would be. The statute of limitations then applicable to real property construction cases was four years. Pursuant to R.C. 2305.09 (D), Oaktree had four years from October 31, 2003 to file. Thus, suit filed on December 16, 2005 was timely. (The majority also noted the voluntary dismissal and August 30, 2007 refiling did not affect the timeliness issue here, as the four year statute of limitations did not run out until October 31, 2007.)
The majority asserted that this position is completely consistent with past precedent, in which in similar situations, the underlying statute of limitations was used to define a reasonable time to file suit. In Sherk, an accrued medical malpractice claim, the court found one year to be a reasonable time to bring suit, matching the one year statute of limitations in a medical claim.
In Groch, a products liability case, the court decided two years was a reasonable time in which to bring an accrued products liability claim, matching the statute of limitations in a products case.
The majority held that the same rule should apply in this case, meaning four years was a reasonable time in which to bring suit.
The jury verdict in favor of Oaktree is reinstated.
Writing for the dissenters, Justice Kennedy would find that Oaktree did not file suit within a reasonable period of time, and would affirm the court of appeals on different grounds.
Kennedy disagreed that the holdings in Groch and Sherk establish a policy of using the pertinent statute of limitations to determine a reasonable time in which to file a claim that accrues before the enactment of a statute of repose.
Kennedy asserts that the one year reasonableness provision established in Sherk for medical claims was based on the court-made time of discovery rule, while the two year rule of reasonableness established in Groch for products claims came not from the general statute of limitations for products liability cases, but rather from the specific language of the products liability statute of repose. R.C. 2305.10 (C)(4) and(5) allow a two year filing period for a vested products liability claim.
Comparable to the grace period for vested claims in the products liability statute of repose, R.C. 2305.131(A)(2) allows a claimant two years, not four, from the time of discovery if the cause of action “accrues less than two years prior to the expiration of the ten-year period.” Kennedy accuses the majority of ignoring this express statutory provision in the construction statute of repose (which Hallmark conceded at argument does not apply to this case, but Kennedy does not mention that specifically) and for ignoring the express legislative intent to “promote a greater interest than the interest underlying the general four-year statute of limitations” of R.C. 2305.09.” She criticizes the majority for failing to harmonize its holding with the purpose and intent of the construction statue of repose, and for perpetuating the exact kinds of concerns the legislature sought to avoid when it enacted this statute of repose.
Kennedy believes that the determination of what constitutes a reasonable period of time in a given case must be determined as a matter of law based on the facts of that particular case. In this case, she would find that Oaktree did not enforce its vested right within a reasonable period of time, given the fact it was placed on notice of its claims on October 31, 2003. She doesn’t set a two year bright line rule of reasonableness as a matter of law here (as the court of appeals did by analogy to the Groch case reasoning), but certainly suggests that as the outer limit in this case.
A cause of action that has accrued but on which no suit has been filed by the effective date of a statute of repose, such as R.C. 2305.131, is governed by the relevant statute of limitations for the time of filing that particular type of cause of action.
The majority pretty much adopted all the points argued by Oaktree at oral argument, while the dissent did the same for Hallmark’s argument. All the justices were concerned about the interplay between the statute of limitations and the statute of repose.
Justice Kennedy’s dissent most reflects the concerns voiced by Justice French at oral argument. It was French who stressed the language from the uncodifed law showing that the legislative intent was “to promote a greater interest than the general four year statute of limitations,” and suggested that a case by case determination rather than a bright line rule would be more appropriate here. French has often taken that position, which seems to me to be impractical in this context. When she pressed that position at argument, Chief Justice O’Connor countered by asking whether a bright line rule would be more useful to the bench and bar than a case by case determination of reasonableness.
I called this as a win, although not a unanimous one, for Oaktree. I suggested that a bright line four year rule of reasonableness, to match the existing statute of limitations, would be the simplest and easiest way out, and would be consistent with both Sherk and Groch in which the period of reasonableness matched the underlying statute of limitations of that particular type of claim. I noted that I thought this would be a better solution than Justice French’s suggested case by case determination of reasonableness. At argument, it was clear that Justice O’Neill and the Chief were most poised to go this way, and would get the vote of Justice Pfeifer, who dislikes statutes of repose. They also picked up Justice Lanzniger’s vote.