This matter was heard on remand from the Appellate Division to determine, after a hearing pursuant to Lopez v. Swyer, 62 N.J. 267 (1973): (1) the applicability of the "discovery rule" to the facts of this case, and (2) if applicable, to rule on the timeliness vel non of a Demand for Arbitration.
On December 7, 1981 Alexian Brothers filed a Demand for Arbitration with respect to two contracts. One contract required plaintiff, Torcon, Inc., to perform construction work for the hospital and the other involved Oakley as architect on the project. Each contract contained an arbitration clause which provided that no Demand for Arbitration could be made if legal proceedings would have been barred by the applicable Statute of Limitations.
In response to the Demand for Arbitration, Torcon filed a Verified Complaint and Order to Show Cause to enjoin the arbitration on the grounds that the Demand for Arbitration was untimely and, therefore, barred by virtue of the aforementioned contract. The Chancery Division, Union County, held that N.J.S.A. 2A:14-1.1 (the ten year Statute of Limitations) controlled and, therefore, the Demand for Arbitration was timely. The Appellate Division reversed holding:
Though N.J.S.A. 2A:14-1.1 may sometimes bar an action that might otherwise be timely, if an action is barred by 2A:14-1 it cannot be saved by N.J.S.A. 2A:14-1.1. See O'Connor v. Altus, 67 N.J. 106, 122-123 (1975).
The Demand for Arbitration was filed on December 7, 1981. Therefore, if it is found that either the cause of action arose more than six years before that date or that the discovery rule does not affect the running of the Statute of Limitations, then the Demand would be untimely.
The seminal "discovery rule" case in this State is Fernandi v. Strully, 35 N.J. 434 (1961). Our Supreme Court recognized therein that there were certain "'class(es) of cases' where the period of limitations may and should fairly and justly be said to begin to run when the plaintiff knows or has reason to know of this cause of action." Id. at 450 (Emphasis supplied). Fernandi was a medical malpractice case wherein a foreign object (a wing nut) remained in plaintiff's abdomen after total hysterectomy surgery. In balancing the interests involved, the Supreme Court emphasized that plaintiff's claim did not "raise questions as to her credibility" . . . that "the lapse of time (did) not entail the danger of a false or frivolous claim, nor the danger of a speculative or uncertain claim" and "the circumstances (did) not permit the suggestion that Mrs. Fernandi may have knowingly slept on her rights." The Court, however, limited its ruling to the foreign object medical malpractice case.
Since Fernandi the discovery rule has been held applicable to cases involving the six-year period of limitations, See New Market Poultry Farms, Inc. v. Fellows, 51 N.J. 419 (1968),
concerning an alleged error in a land survey; Diamond v. New Jersey Bell Telephone Co., 51 N.J. 594 (1968), alleging negligent installation of an underground conduit that caused flooding on plaintiff's property; Federal Insurance Co. v. Hausler, 108 N.J. Super. 421 (App.Div.1970), where it was held that N.J.S.A. 2A:14-1 was subject to the discovery rule in an action for wrongful detention of shares of stock; Gibbins v. Kosuga, 121 N.J. Super. 252 (Law Div.1972), where plaintiff started suit nine years after closing title because a well was not on their property. See also McCoy Co., Inc. v. S.S. "Theomitor III ", 133 N.J. Super. 308 (Law Div.1975), Brown v. College of Medicine and Dentistry, 167 N.J. Super. 532, 536-537 (Law Div.1979) and O'Keeffe v. Snyder, 83 N.J. 478 (1980), where the discovery rule was applied to an action for replevin of a painting under N.J.S.A. 2A:14-1.
This Court finds there is no legitimate reason to hold that the discovery rule is inapplicable to cases involving a Demand for Arbitration under a construction contract in the appropriate circumstances, in view of the expanding employment of the discovery rule. If "the discovery rule is essentially a rule of equity (and) . . . equity lies at its genesis," Lopez, supra., 62 N.J. at 273 there is no reason not to apply it in cases involving construction and design when the allegation is that the damage or injury lay hidden for a period of time. It would be anomalous to hold that certain classes of plaintiffs are afforded the protection of the discovery rule while others are not when it is alleged the injury was not readily ascertainable. The discovery rule should be equally applicable to allegedly hidden construction and design ...