Opinion
DOCKET NO. A-5125-11T3
2013-10-07
PASSAIC VALLEY WATER COMMISSION, Plaintiff-Appellant, v. PRISMATIC DEVELOPMENT CORPORATION, INC., UNITED STATES FIDELITY AND GUARANTY CO., AND ITT WATER AND WASTEWATER, LEOPOLD, INC., Defendants-Respondents.
McManimon, Scotland & Baumann, L.L.C., attorneys for appellant (Leslie G. London, of counsel; Ms. London and Ted Del Guercio, III, on the briefs). Peckar & Abramson, PC, attorneys for respondents Prismatic Development Corporation, Inc. and United States Fidelity and Guaranty Co. (Patrick J. Greene, Jr. and Frank A. Hess, on the brief). Coughlin Duffy LLP, Scott D. Cessar and Audrey K. Kwak (Eckert Seamans Cherin & Mellott, LLC) of the Pennsylvania bar, admitted pro hac vice, attorneys for respondent ITT Water and Wastewater, Leopold, Inc. (Timothy I. Duffy and Mr. Cessar, of counsel; Mr. Duffy, Mr. Cessar and Ms. Kwak, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Lihotz and Ostrer.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-1881-11.
McManimon, Scotland & Baumann, L.L.C., attorneys for appellant (Leslie G. London, of counsel; Ms. London and Ted Del Guercio, III, on the briefs).
Peckar & Abramson, PC, attorneys for respondents Prismatic Development Corporation, Inc. and United States Fidelity and Guaranty Co. (Patrick J. Greene, Jr. and Frank A. Hess, on the brief).
Coughlin Duffy LLP, Scott D. Cessar and Audrey K. Kwak (Eckert Seamans Cherin & Mellott, LLC) of the Pennsylvania bar, admitted pro hac vice, attorneys for respondent ITT Water and Wastewater, Leopold, Inc. (Timothy I. Duffy and Mr. Cessar, of counsel; Mr. Duffy, Mr. Cessar and Ms. Kwak, on the brief).
The opinion of the court was delivered by OSTRER, J.A.D.
This case involves the timeliness of a complaint alleging breach of a construction contract and related claims. In 2001, the Passaic Valley Water Commission (Commission) hired Prismatic Development Corporation (Prismatic) and its subcontractor, ITT Water and Wastewater, Leopold, Inc. (Leopold) to renovate its Little Falls water treatment plant. The work was completed in May 2004, and a "catastrophic failure" occurred at the plant in August 2005. The Commission filed its complaint over six years later, on October 26, 2011, against Leopold, Prismatic, and its surety United States Fidelity and Guaranty Co. (USF&G).
The trial court granted defendants' motion to dismiss with prejudice the Commission's complaint on statute of limitations grounds. The court accepted movants' argument that the limitations period began to run no later August 2005, and was not equitably tolled. On appeal, the Commission argues the limitations period commenced after October 2005; and alternatively, issues of material fact should have compelled the court to conduct an evidentiary hearing, pursuant to Lopez v. Swyer, 62 N.J. 267, 272 (1973), on when discovery triggered the commencement of the limitations period. Having considered the Commission's legal arguments in light of the record and applicable law, we disagree and affirm.
I.
We discern the following facts from the Commission's complaint, giving plaintiff the benefit of all reasonable factual inferences. See Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989).
On October 16, 2001, the Commission awarded Prismatic, as general contractor, the contract for a "major upgrade and expansion" of the Commission's water treatment plant in Little Falls. The project involved renovating twenty-four filters from February 2002 through August 2003. The filters contained multiple layers of filtering media, including sand, gravel, and carbon. Prismatic was primarily responsible for construction methods and for its subcontractors and suppliers. Among them was Leopold, which agreed to supply filter underdrains for the plant.
The Commission's counsel asserted before the trial court that the filters ranged in size between 568 and over 1000 square feet.
The Commission alleged that Prismatic completed installation of the filter underdrain systems in August 2003, and completed "all work" under the contract in May 2004. Plaintiff made its final payment to Prismatic in May 2005.
The Commission discovered "deficiencies and failures" in the filter underdrain system beginning in August 2005. In its complaint, the Commission states:
22. On or about August 2005, deficiencies and failures in the filter underdrain system were noted by the Commission, when there was a catastrophic failure in Filter B-1. Thereafter, subsequent failures were noted by the Commission through common symptoms such as increasing head losses during backwashing of the filters across the underdrains, increasing accumulation of filter media periodically clogging the samples lines and instrumentation, and cratering of the filter media, which was an indication that significant amounts of filter media was lost through the underdrains, interconnecting channels, and underdrain piping and gullets.
23. On or about October 2005, the Commission began to experience repeated system failures with regard to the filter underdrain system. Numerous filters experienced repeated failures as evidenced by substantial amounts of media leaving the top of the filters and migrating and accumulating in the underdrains themselves, as well as in the interconnecting channels and filter gallery piping.
Plaintiff alleged that Prismatic caused the filter underdrain system failures, particularly in Filters B-1 and F-1, by failing to "properly epoxy some of the rebar anchors into the concrete filter box," which was a "latent defect." The defect "only came to light when the filter underdrains in the Filter B-1 upheaved." Prismatic also allegedly failed to "properly fill the voids between adjacent underdrains with grout," and improperly stuffed bags into the filter system. Therefore, the "remaining grout began to crack, loosen up, and spall, which enabled the underdrains to be displaced during operation and backwash[.]"
Prismatic's failure to provide proper grouting was also allegedly a "latent defect" because it only came to light when the filter underdrains in Filter B-1 upheaved, when filter media accumulated elsewhere.
In addition, plaintiff claimed Prismatic failed to remove construction debris from its demolition of the existing clay tile filter bottoms. The Commission alleged it discovered the construction debris "following the upheaval of the filter underdrains in Filter B-1 in August 2005." The debris impeded the flow of backwash water, and caused other problems in the system. The failure to remove the debris was another latent defect because it "only became known . . . when the filter underdrains in Filter B-1 unheaved."
In December 2005, the Commission asked Prismatic and Leopold, directly and through USF&G, to "develop a viable, comprehensive plan and schedule to address the failure the Commission was experiencing with the filter underdrain system." Prismatic and Leopold performed repairs that were unsuccessful, including adding cap screws to reinforce the ends of the underdrain caps, drilling holes in some of the underdrains, and repairing loose and missing grout. The complaint does not specify when Prismatic and Leopold performed the repairs.
The next event the Commission addressed in its complaint occurred over five years later, on January 27, 2011, when it advised Prismatic, USF&G and Leopold that "if a definitive written agreement between Prismatic and Leopold to address the complete replacement of the filter underdrains in the Commission's filters were not delivered to the Commission on or before February 3, 2011, [then] the Commission would immediately advertise contract documents for public bidding for the work required to remedy the filter underdrain issues."
The Commission then proceeded to seek public bids for the replacement of filter underdrains, "[d]ue to the large number of filters out of service, the increasing number of filters not being returned to service faster than they were failing, and the fast-approaching next period of increased demands." Bids were received in March 2011. The Commission then hired new companies to provide "sand and filter media" to repair the underdrain system, and to replace the filters that Prismatic installed with new Leopold filters. Two months later, the Commission hired Leopold to provide technical assistance. Leopold also agreed to participate in a retrofit of the basin with new filter underdrains. Prismatic declined to participate.
The Commission alleged against Prismatic: breach of contract to install the filter underdrain system (count one); unjust enrichment (count two); breach of the covenant of good faith and fair dealing (count three); fraud and violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195 (count four); breach of warranties and misrepresentation (count five); and negligence (count seven). The Commission also sought punitive damages (count six). The Commission reasserted those claims against Leopold (count eight), and also sought to recover from USF&G damages caused by Prismatic (count nine).
In his written opinion granting defendant's motion, Judge Chiocca concluded the limitations period pursuant to N.J.S.A. 2A:14-1 began no later than August 2005, when Filter B-1 failed, and the Commission became aware of deficiencies and failures in the filter underdrain system. The judge also emphasized plaintiff "knew that Prismatic was the party responsible for renovating [plaintiff's] filter underdrain system," and that Leopold supplied the filters.
In August, 2005, [plaintiff] became aware of "deficiencies and failures in the filter underdrain system", when there was a "catastrophic failure in Filter B-1 . . . ." In addition, [plaintiff] "discovered construction debris from Prismatic's
demolition of the existing clay tile filter underdrains mixed in with large quantities of media that had accumulated in the underdrains, channels and piping, following the upheaval of the filter underdrains in Filter B-1 in August, 2005 . . . ." Accordingly, as of August, 2005, [plaintiff] knew that Filter B-1 had suffered a catastrophic failure; therefore, [plaintiff] knew in August, 2005, that it had suffered an injury. [Plaintiff] also knew that Prismatic was the party responsible for renovating [plaintiff]'s filter underdrain system, which included filters designed and manufactured by Leopold; therefore, [plaintiff] had knowledge in August, 2005, of the identity of the party or parties that caused the injury (i.e., the catastrophic failure of Filter B-1).
Relying on Torcon, Inc. v. Alexian Brothers Hospital, 205 N.J. Super. 428 (Ch. Div. 1985), aff'd o.b., 209 N.J. Super. 239, 240 (App. Div.), certif. denied, 104 N.J. 440 (1986), the court held the Commission did not need to know the "specific cause" or "extent of the injury" to trigger the statute. Accrual did not await the plaintiff's investigation in October 2005, which revealed a systemic latent defect in the filters. That investigation disclosed the "extent of the injury."
Judge Chiocca also declined to equitably toll the statute. He noted the Commission had "ample time and opportunity to both investigate and assert claims arising out of the catastrophic failure of Filter B-1 in August, 2005 and the subsequent discovery of system wide failure by October, 2005." The Commission failed to present facts "that would evidence any misrepresentation and/or concealment of material facts" by Prismatic or Leopold "in connection with their efforts to assist [plaintiff] in the repair of the failed filter underdrain system."
This appeal followed.
II.
Whether a cause of action is barred by the statute of limitations is a legal question subject to our de novo review. See Estate of Hainthaler v. Zurich Commercial Ins., 387 N.J. Super. 318, 325 (App. Div.) (citations omitted), certif. denied, 188 N.J. 577 (2006). There also is no dispute that a six-year limitations period governs the Commission's contract, fraud, and CFA claims. See N.J.S.A. 2A:14-1. The issue before us is when the cause of action accrued and whether the limitations period should have been equitably tolled.
Absent equitable tolling, the cause of action accrued no later than the discovery rule required. "New Jersey's discovery rule . . . tolls the statute until the victim discovers both the injury and the facts suggesting that a third party may be responsible." See, e.g., Ayers v. Twp. of Jackson, 106 N.J. 557, 582 (1987). Our Court has recognized the discovery rule applies to the six-year statute of limitations for construction defects. Town of Kearny v. Brandt, 214 N.J. 76, 86 n.1 (2013) (citing Russo Farms, Inc. v. Vineland Bd. of Educ, 144 N.J. 84, 115 (1996)); Torcon, supra, 205 N.J. Super. at 431-32. Indeed, our Court has observed that the ten-year statute of repose, N.J.S.A. 2A:14-1.1, was enacted in part to limit the potential exposure to suit, based on the discovery rule, of defendants in construction-related actions. Town of Kearny, supra, 214 N.J. at 92; see also Cumberland Cnty. Bd. of Chosen Freeholders v. Vitetta Grp., P.C., 431 N.J. Super. 596, 607 (App. Div. 2013).
The Commission asserts the trial court misapplied the discovery rule because there were disputed material facts regarding when the Commission learned it had suffered injury and whether a third party was at fault. The Commission argues the filter underdrain system was complex. Prior to its physical investigation, requiring removal of several feet of sand, the Commission could not isolate which of several causes was responsible for the failure of Filter B-1. "There was no knowledge of fault or of any potentially responsible party as of August of 2005" because, according to counsel at oral argument on the motion, other factors, such as water quality, operator error, or the chemicals involved, may have been responsible. The Commission did not deem it necessary to conduct an investigation after only one drain failed. Only the failure of other drains a couple months after the August 2005 failure suggested "attributable, avoidable fault." Consequently, the Commission argues the limitations period did not run in August 2005. Alternatively, the Commission argues the trial court erred by failing to conduct an evidentiary hearing pursuant to Lopez, supra, 62 N.J. at 272.
We disagree. In order for an action to accrue under the discovery rule, an injured party need not know with absolute certainty that a third party was at fault, nor need an injured party be able to identify that third party. "We impute discovery if the plaintiff is aware of facts that would alert a reasonable person to the possibility of an actionable claim; medical or legal certainty is not required." Lapka v. Porter Hayden Co., 162 N.J. 545, 555-56 (2000) (emphasis added). "'The proofs need not evoke a finding that plaintiff knew for a certainty that the factual basis [of a cause of action] was present. It is enough that plaintiff had or should have discovered that he "may have" a basis for the claim.'" Id. at 556 (quoting Burd v. New Jersey Tel. Co., 76 N.J. 284, 291 (1978)); see also Savage v. Old Bridge-Sayreville Med. Grp., 134 N.J. 241, 248 (1993).
A plaintiff need not know the "'extent of injury before the statute begins to run[,]'" Russo, supra, 144 N.J. at 115 (citation omitted), nor must the injured party know the exact cause of the injury. Torcon, supra, 205 N.J. Super. at 435. Also, a plaintiff need "not know the identity of the wrongdoer . . . [if] aware that the fault of another had caused" the injury. Viviano v. CBS, Inc., 101 N.J. 538, 546-47 (1986); Dunn v. Borough of Mountainside, 301 N.J. Super. 262, 274 (App. Div. 1997), certif. denied, 153 N.J. 402 (1998).
Based on the Commission's allegations, it reasonably should have known in August 2005 that it possibly had a claim against a third party for the "catastrophic failure" of a massive filter in its water plant. Although the Commission now argues that it was unsure whether human error, water quality, or chemicals were at fault, rather than defendants, the Commission alleged that after the Filter B-1 failure, it "noted" "deficiencies and failures in the filter underdrain system." The determination was sufficient to trigger the limitations period on a claim against the parties who installed or supplied components of that allegedly deficient system.
It is of no moment that the Commission did not learn the extent of the injury until subsequent failures occurred. Nor is it significant that the Commission did not allegedly learn with certainty the cause and responsible party until it conducted a thorough investigation. Discovery under the rule occurred in August 2005. At that point, the Commission had six more years to file suit.
The trial court also did not err when it declined to order a hearing to determine when discovery occurred. We recognize that ordinarily, the court as fact-finder will need to conduct a hearing to determine whether to apply the discovery rule, and to determine when the cause of action accrued under the rule. See Lopez, supra, 65 N.J. at 272 (discussing need and contours of hearing). However, a hearing is not required where the facts are not in dispute. Dunn, supra, 301 N.J. Super. at 274 (stating no hearing necessary where "[t]he material facts regarding plaintiff's efforts to identify the tortfeasors were not in dispute, and credibility was not an issue").
The Commission may not create a genuine issue of fact based on counsel's representations about alternative causes of the August 2005 filter failure, as opposed to cognizable evidence submitted by certification or affidavit. See R. 1:6-6. Furthermore, even if it were conceivable that other causes were responsible, that did not create a material issue of fact. Based on the Commission's allegations, it noted a systemic failure. That was sufficient to trigger the limitations period without the necessity of a hearing.
The Commission also renews its argument, presented to the trial court, that the doctrine of equitable tolling should have delayed the limitations period. The Commission argues defendants "lulled" plaintiff into "detrimental inaction by undertaking to repair its defective work, with a promise to fix the problem."
We are unpersuaded. A court may toll the statute of limitations if a defendant induces a plaintiff "into missing the filing deadline by concealing the seriousness of defects in the construction or by promising to repair all of the defects without the need for litigation." Trinity Church v. Lawson-Bell, 394 N.J. Super. 159, 172 (App. Div. 2007). However, the Commission at most alleges that it asked Prismatic and Leopold, in December 2005, to develop a "viable, comprehensive plan and schedule to address the failure." The Commission also alleges that attempted repairs were insufficient. The complaint is silent on what occurred between 2006 and 2010. The Commission then alleges that in January 2011, it advised the firms that if they did not agree to provide a complete replacement, the Commission would seek bids for the work from others. The Commission does not allege any acts of concealment, misrepresentation, or promises to repair in order to avoid litigation.
Moreover, it is indisputable that once Prismatic and Leopold refused to enter into the requested "definitive agreement," any alleged lulling of the Commission ceased. The Commission issued requests for bids for replacement work with a deadline of March 8, 2011. Although the record does not reflect when the Commission issued the request for bids, we surmise it occurred around February 2011. Consequently, there was a reasonable period of time within which the Commission could have filed its complaint before the limitations period would have expired in August 2011.
"'[I]f, after the cessation of any basis for continued reliance by a plaintiff on the conduct of a defendant, there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be barred if not filed within this remaining time." Ibid. (quoting Mosior v. Ins. Co. of N. Amer., 193 N.J. Super. 190, 197 (App. Div. 1984); see also Ochs v. Fed. Ins. Co., 90 N.J. 108, 116-17 (1982) (stating that nine months was a reasonable time); Evernham v. Selected Risks Ins. Co., 163 N.J. Super. 132, 137 (App. Div. 1978) (stating that one year remaining in limitations period was a reasonable time within which to file a complaint).
Finally, we reject the Commission's argument that the court should have allowed it to amend its complaint in lieu of dismissal. The Commission did not file a motion to amend in response to defendants' motion to dismiss, or at any time thereafter, nor did the Commission proffer to the court the amendments that arguably would have saved its complaint. See R. 4:9-4 (stating a motion to amend "shall have annexed thereto a copy of the proposed amended pleading").
We recognize that the court dismissed the complaint with prejudice, thereby precluding amendment after dismissal. However, in light of the undisputed facts asserted in the Commission's complaint, we discern no error. A plaintiff's failure to satisfy the statute of limitations is ordinarily an affirmative defense. R. 4:5-4. The defendant bears the burden to establish the defense by a preponderance of the evidence. Italian Fisherman, Inc. v. Commercial Union Assurance Co., 215 N.J. Super. 278, 282 (App. Div.) (stating that preponderance of the evidence is the appropriate standard of proof governing affirmative defense), certif. denied, 107 N.J. 152 (1987).
However, where the facts pertaining to the statute of limitations are not in dispute, "a statute of limitations defense is sufficiently akin to failure to state a claim as to permit disposition by way of motion under R. 4:6-2(e)." CKC Condo. Ass'n, Inc. v. Summit Bank, 335 N.J. Super. 385, 387 n.1 (App. Div. 2000); Henry V. Vaccaro Constr. Co. v. A. J. De Pace, Inc., 137 N.J. Super. 512, 513 (Law Div. 1975) (where the statute of limitations appears on the face of the complaint "the defense may be raised by motion for failure to state a claim upon which relief can be granted under R. 4:6-2(e)").
Moreover, the trial court was not constrained here by the general rule that dismissal of a complaint for failure to state a claim is generally without prejudice. Pressler & Verniero, Current N.J. Court Rules, comment 4.1.1 on R. 4:6-2 (2013) ("Ordinarily, a dismissal for failure to state a claim is without prejudice."). However, a dismissal on statute of limitations grounds may be an exception. As the Court stated in Printing Mart, supra, 116 N.J. at 772, a dismissal for failure to state a claim should be without prejudice "barring any other impediment such as a statute of limitations."
No amendments could undo the Commission's admissions that it was aware of systemic deficiencies in August 2005, which triggered the limitations period. Moreover, even assuming the Commission could supply, upon amendment, omitted allegations of misrepresentation sufficient to support an equitable tolling claim, the Commission's affirmative allegations establish that any conceivable reliance ceased in January or February 2011. That would have provided a reasonable time within which to file before the limitations period expired.
Given our views of the statute of limitations, we need not reach defendants' alternative arguments in support of dismissal of the Commission's complaint.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION