Foran Glennon Palandech Ponzi & Rudloff

August 2014

Private Limitations Provision is Enforceable Against Third Party Actions; Architect’s Date of Substantial Completion is Conclusive

Madelene G. Sheaffer

The First District Appellate Court of Illinois in 15th Place Condo. Ass’n v. South Campus Development Team, 2014 Ill. App. 122292 ruled that a contract accrual provision is applicable to third party actions.  Consequently, a party’s claim may be time barred even before an underlying claim arises.  Additionally, where the contract provides that the architect has the sole and exclusive responsibility to determine substantial completion, other testimony is irrelevant and immaterial.

Factual Background. South Campus Development Team, LLC (“SCDT”) was the developer of two adjacent condominium towers located at 811 and 833 West 15th Place in Chicago, Illinois.  SCDT contracted with Fitzgerald for architectural services (“O/A agreement”) and with Linn-Mathes as general contractor (“O/GC agreement”).  Both contracts included an accrual provision, which stated that all causes of action against Fitzgerald or Linn-Mathes accrue on project substantial completion.  Additionally, the O/A agreement provided that substantial completion was to be determined exclusively by the architect.

After a number of condominium units were sold, SCDT turned over control of the condominiums to the owners and the 15th Place Condominium Association (“Association”) in April 2005.  The unit owners then discovered alleged design and construction defects to the buildings’ masonry, balconies, and garage.  On September 4, 2008, the Association filed its lawsuit against SCDT.  In June 21, 2011, SCDT filed a third-party complaint against Fitzgerald and Linn-Mathes.  SCDT alleged claims for a breach of contract and implied indemnity against Fitzgerald and Linn-Mathes.  SCDT also claimed a breach of implied warranty of good workmanship and express indemnity against Linn-Mathes.  Fitzgerald and Linn-Mathes each filed a motion to dismiss the third-party complaint, asserting that the causes of actions were time-barred pursuant to the contracts’ accrual provisions.  Fitzgerald and Linn-Mathes attached an affidavit from Fitzgerald’s president and project manager, Michael DeRouin, who confirmed that substantial completion occurred on May 16, 2003 for the first tower and October 11, 2004 for the second tower.  The affidavit also incorporated a letter and a certificate of substantial completion, with the same dates.  Per the accrual provision, Fitzgerald and Linn-Mathes asserted that the 4-year statute of limitation period for construction activities began to run on October 11, 2004 and expired on October 11, 2008.

In response, SCDT argued that the cause of action accrual provision does not apply to third-party claims; rather, its claims against Fitzgerald and Linn-Mathes did not accrue until it was served with the Association’s complaint.  Additionally, SCDT attached a counter-affidavit from Vincent Forgione, an employee of Frontier Management Corporation, an SCDT affiliate.  Forgione averred that based on his experience and the contractor draw schedule; he believed that substantial completion most likely occurred in early 2006.  The trial court dismissed SCDT’s third party claims and SCDT appealed.

Discussion.  Two of the issues on appeal were: 1) whether the accrual agreements were enforceable against third party claims; and 2) whether the trial court improperly decided a disputed fact respecting the date of substantial completion.

With regard to the first issue, the Court held that a cause of action accrual provision is subject to third party actions.  The Court reasoned that the parties involved were sophisticated and had bargained for and agreed upon an accrual provision in the contract that effectively eliminated the discovery rule.  The accrual provisions were clear and unambiguous and from the plain language of the provisions, it was evident that the parties intended the accrual provision to apply to any and all claims, including third-party claims.  Accordingly, the accrual provisions were enforceable and applicable to the SCDT’s claims against Fitzgerald.

In addition, the Court held that the trial court did not improperly rule on a question of fact because the date of substantial completion was not a disputed issue.  The contracts stated that the architect was the sole determiner of the date of substantial completion.  Therefore, the Court held that any evidence regarding the date of substantial completion which did not comport to the contract terms is immaterial.  Consequently, Forgione’s estimated date of substantial completion was irrelevant and did not create a material issue of disputed fact.  SCDT’s causes of action for a breach of contract, implied indemnity, and implied warranty of good workmanship were reaffirmed as time-barred, as a matter of law.

Conclusion.  The First District Appellate Court’s holding in 15th Place affirms that contracting parties can contractually limit third party liability by tying accrual of causes of action with the project date of substantial completion.  The accrual provision will apply even if it may result in a party’s claims expiring before an underlying claim arises.  Additionally, where the contract designates the architect with the right to establish the date of substantial completion, contrary evidence inconsistent with the contract terms is immaterial.