December 2005

Construction Law Bulletin

The Construction Law Bulletin is published by the Construction Practice Group  at Arthur, Chapman, Kettering, Smetak & Pikala, P.A. to keep our clients informed of the ever-changing complexities of construction law.  Minnesota’s appellate courts have been busy lately in the construction area and there are several new cases we thought you should know about.

Brink v. Smith Companies Const., 703 N.W.2d 871 (Minn. Ct. App. 2005).

In this case, the Court of Appeals ruled that the statute of repose in Minn. Stat. §541.051 was unconstitutional when its application barred contribution claims before they accrued. The town home at issue in the case was substantially completed by June 2, 1989. The homeowners sued their builder on December 27, 2002, asserting claims under Minn. Stat. 327A, Minnesota’s statutory warranty. The builder commenced third-party contribution claims on February 3, 2003.

The subcontractors against whom the contribution claims were asserted were dismissed after arguing that the contribution claims were untimely because they were commenced more than 10 years after completion of construction, in violation of 541.051. The general contractor argued that the law as applied was unconstitutional because it denied the general contractor due process (under the Minnesota and Federal constitutions) and the right to a remedy (under the Minnesota constitution).

The Minnesota Court of Appeals agreed with the general contractor, at least with respect to claims based on 327A. The Court of Appeals reasoned that prior to August 1, 2004 (the effective date of an amendment to 541.051 that created a statute of repose applicable to 327A claims), 327A claims could be asserted against general contractors for an unlimited period of time, but contribution claims were cut off 10 years after substantial completion of construction. Thus, where a 327A claim was commenced more than 10 years after construction, the general contractor would be precluded from pursuing contribution claims before those claims accrued. According to the Court of Appeals, this is unconstitutional.

The Court of Appeals was careful to note that this decision was likely to have very little impact because it would only apply in cases commenced prior to the August 1, 2004 effective date of the amendment to 541.051. They reasoned that in cases commenced after that date, 327A claims would become untimely at the same time contribution claims did, so the general would not find itself in a situation where it could be sued under 327A at a time when it was already too late to commence a contribution claim.

However, this reasoning appears to ignore the statutory definition of accrual for contribution claims. According to 541.051, such claims accrue "upon payment of a final judgment, arbitration award, or settlement arising out of the defective and unsafe condition." Applying this definition, it appears likely that accrual of contribution claims could very likely occur after expiration of the statute of repose applicable to 327A claims. Would this be unconstitutional, too? Stay tuned.

Ittel v. Pietig, 705 N.W.2d 203 (Minn. Ct. App. 2005).

This case also deals with 327A claims, but Ittel addresses the requirements for waiver of 327A claims. This case has important implications for the language of releases that purport to release all claims, known and unknown, now and in the future.

The Ittels commenced three actions against their builder. The second action was settled, and the homeowners executed a release which stated as follows:

The Ittels then commenced an action against the builder in which they asserted statutory warranty claims pursuant to Minn. Stat. 327A. The trial court dismissed the builder from this action based on the release language.

The homeowners appealed, arguing that the release did not comply with the provisions of Minn. Stat. 327A which define how the statutory warranties can be modified or waived. The Minnesota Court of Appeals agreed, concluding the release language above was insufficient to waive future statutory warranty claims.

The statutory provisions at issue include Minn. Stat. 327A.04, subd 1, which provides:

Minn.Stat. § 327A.04, subd. 1 (2004). Subdivision 2 states:

This, of course, begs the question of whether a release can ever include future statutory warranty claims. We have a couple thoughts. First, 541.051 now provides that statutory warranty claims cannot be commenced more than 12 years after the "warranty date." (327A.01 defines the "warranty date" as the date of first occupancy or the date the first owner takes title to the dwelling, whichever is earlier.) Thus, in most cases, following a release there will not be much time remaining for timely commencement of a 327A claim.

Second, we do not yet have any guidance from the courts on what "substantially the same protections" means. But that language may allow you to exclude from future warranty claims those areas encompassed by the release. This would obviously require skillful drafting of release language and agreement by other parties with that language.

Camacho v. Todd and Leiser Homes, Inc., ___ N.W.2d _____, 2005 WL 3117292 (Minn.).

In Camacho v. Todd and Lieser Homes, the Camachos were the subsequent owners of a home that was built by Todd and Leiser Homes, Inc. in 1993. On April 29, 1997, Todd and Leiser Homes filed a notice of intent to dissolve with the Minnesota Secretary of State pursuant to Minn. Stat. § 302A.723, subd. 1(2). On May 6, 1999, Todd and Leiser Homes filed its articles of dissolution with the Secretary of State. In September, 2003, the Camachos learned that their home had incurred damage as a result of water intrusion, and commenced suit against Todd and Leiser Homes asserting claims for breach of statutory warranty and negligence.

Todd and Leiser Homes filed a motion for summary judgment on the grounds that the Camachos suit was time barred due to their failure to commence their action within two years of April 29, 1997, the date it filed its notice of intent to dissolve, as required by Minn. Stat. § 302A.7291. Specifically, Minn. Stat. § 302A.7291, subd. 3(a) provides that creditors must bring a claim against a corporation within two years of the date the corporation files its notice of intent to dissolve with the Secretary of State or are barred from bringing the claim. The trial court denied Todd & Leiser’s Motion for Summary Judgment. The Court of Appeals reversed the decision in Camacho v. Todd & Leiser Homes, No. A04-599, 204 WL 2940812 (Minn.App. Dec. 21, 2004), holding that the corporate dissolution statute required the Camachos to bring their action within two years of the date of filing of Todd and Leiser Homes’ notice of dissolution with the Secretary of State.

The Camachos argued to the Supreme Court that the corporate dissolution statute was in conflict with the home warranty statute, which provides a ten year statutory warranty period. On November 23, 2005, the Supreme Court issued its opinion disagreeing with the Camachos argument, affirming the Court of Appeals and upholding the dismissal. Specifically, the Supreme Court held that the two statutes were not in direct conflict, and that the corporate dissolution statute merely acts as a statute of repose barring claims brought against voluntarily dissolved corporations after two years from the date the corporation files its notice of intent to dissolve.

Of significance, in reaching its opinions, the Supreme Court considered an article, The 25 Year Water Claim (A Fun-Key Story), Minn. Def., Winter 2005, which was co-authored by Shamus O’Meara and Anton van der Merwe, an attorney with Arthur Chapman Kettering Smetak & Pikala, P.A. See 205 WL 3117292 (Minn.) at *1, ftnt 3.

If you are interested in a construction law seminar at your office, our Practice Group is available for seminars at your convenience.  We also have our annual Construction Defect Claims Seminar on March 9, 2005 at the Sheraton in Bloomington, MN, more details to follow as that dates gets closer.