Foran Glennon Palandech Ponzi & Rudloff

December 2013

Limitations period set by agreement overrides Discovery Rule: Action barred whether the complained-of injury was discovered or even discoverable within the agreed time period.

By Doug Palandech and Tom Orlando

An Illinois appellate court has found that a contractual limitations period which runs from the date of substantial completion of a construction project is not subject to exceptions based on the Discovery Rule.  J.S. Reimer Inc. v. The Village of Orlando Hills, 2013 IL App (1st) 120106.

The case involves the design, excavation and construction of a new Community Center in the Village of Orland Hills.  The Village entered into a contract with Barclay in September 1999 for certain architectural services necessary for the planning for the project.  Prior to construction, Barclay requested a soil test in order to define the extent of the site’s organic deposits.  In a report dated December 8, 1999, the geotechnical engineer concluded that the Project location had extensive underground peat deposits exhibiting high moisture content.  The report advised that some settlement should be expected as a result of consolidation of the peat deposits, due to the weight of the new fill and the floor slab live loads.  This projected settlement was expected to result in cracking in the floor slab.

Barclay’s drawings and specifications required the excavation/removal of all deleterious material, which Village representatives understood to mean soil that was unsuitable to bear the anticipated loads.  Barclay’s drawings and specifications called for the gymnasium floor to be “slab-on-grade” set upon compacted fill.  The contract between the Village and its excavator required the excavator “to complete excavation & backfill work per project plans, specifications and bid documents.”

The site excavation commenced and concluded in August 2000.  The backfill and compaction operations were completed in September.  Problems between the excavator, the Village and construction manager developed on discovery that the excavator did not excavate enough to remove all deleterious material.  The testimony was to the effect that excavator may have only removed the site topsoil.

The balance of the building was completed in April 2001 with substantial completion being achieved in July 2001.  The concrete floor of the building began to separate from the foundation walls in the summer of 2002.  Testing done in 2003 showed that the deleterious soils were not removed as required by the specifications.  Barclay’s engineer confirmed that he could find no evidence that the backfill had been compacted as required in the specifications.

The litigation began as a mechanics lien and breach of contract case brought by excavator against the Village for unpaid fees.  The Village filed a counterclaim against the excavator on a breach of contract theory and added Barclay, the geotechnical engineer and the construction manager as third-party defendants.

The Village alleged that Barclay, as project architect, failed to adequately specify the removal of peat underlying the foundation of the Community Center as part of the construction process even though it had been informed of the condition and that it would culminate in the sinking and cracking of the concrete slab.

Barclay’s legal defense was contained in its contract with the Village.  That contract contained a private limitations feature providing that causes of action between these parties (owner and architect) are deemed to accrue at the time of substantial completion.

Inasmuch as more than four years had elapsed between the date of substantial completion (July 2001) and the initiation of the third party claim (December 8, 2006), Barclay argued the case was time-barred.  The Village subsequently amended its pleading adding allegations of fraudulent concealment and fraudulent misrepresentation designed to create an estoppel to the running of the contractual limitations provision.

Barclay’s summary judgment motion was granted and the Village appealed.

The appellate court was asked to determine whether the trial court improperly denied the Village’s right to a jury trial in granting Barclay’s Motion for Summary Judgment on the limitations basis and whether there was a genuine issue of material fact which would equitably estop Barclay from raising the limitations defense as a bar to the Village’s claims.

The appellate court agreed with the trial court, finding that the Village knew about the defect by March 2003 (well within the 4 year statute of limitations period), so the Village could have timely filed its lawsuit within the statute of limitations period.  The appellate court’s rationale was that language in standard form contract provided that the limitations period would expire in a fixed time frame from date of substantial completion, regardless of whether the injury was discovered or discoverable at that time. In addition, the transaction was at arms-length, and allegations that the Village trusted Barclay to fulfill its contractual obligations were insufficient to transform the owner/architect relationship into a fiduciary one.  Addressing the claim of equitable estoppel, the appellate court found that the Village could not neglect the information that was readily accessible to it (the reports and discussions of the peat deposits and excavator’s failure to remove the deleterious materials) and then charge its ignorance on Barclay.

With respect to the allegations of fraud, the Village was aware of Barclay’s involvement in approving the alleged revised excavation; therefore, any alleged misrepresentations as to the cause of the problem did not support equitable estoppel.  The court also noted that one of the alleged misrepresentations was made after the period of limitations expired, “so it could not have influenced the . . . decision not to bring suit . . . within the limitations period.”