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The Palisades At Fort Lee Condominium Association, Inc. v. 100 Old Palisade, LLC

Supreme Court of New Jersey

September 14, 2017

THE PALISADES AT FORT LEE CONDOMINIUM ASSOCIATION, INC., Plaintiff-Respondent,
v.
100 OLD PALISADE, LLC, CRESCENT HEIGHTS OF AMERICA, INC., CRESCENT HEIGHTS ACQUISITIONS, LLC, 100 OLD PALISADE HOLDINGS, LLC, 100 OLD PALISADE HOLDINGS II, LLC, 100 OLD PALISADE HOLDINGS III, LLC, EREZ BASHARI, PEIRU WEN, LENNY WARSHAW, NISSIM LANCIANO, SHARON CHRISTENBURY, JOSEPH ZDON, PABLO DE ALMAGRO, EPHRAIM BASHARI, SONNY KAHN, individually and as Trustee of the SK Business Trust, SK BUSINESS TRUST, RUSSELL W. GALBUT, individually and as Trustee of the RF Business Trust, RF BUSINESS TRUST, BRUCE A. MENIN, individually and as Trustee of the MENIN 1998 FAMILY TRUST, MENIN 1998 FAMILY TRUST, F&G MECHANICAL CORP., MANNIX EXTERIOR WALL SYSTEMS, INC., SOUTH SHORE CONTRACTING, INC., PATWOOD CONTRACTING CO., INC., d/b/a PATWOOD ROOFING, MTA CORP., MAARV WATERPROOFING, B&B IRON WORKS, INC., RAY ENGINEERING, INC., STEVEN W. RAY, P.E., METRO GLASS, INC., and ROMITCH CO., Defendants-Appellants, and AJD CONSTRUCTION CO., INC., LUXURY FLOORS, INC., BENFATTO MASONRY, INC., and FORSA CONSTRUCTION, INC., Defendants-Appellants. 100 OLD PALISADE, LLC, CRESCENT HEIGHTS OF AMERICA, INC., CRESCENT HEIGHTS ACQUISITIONS, LLC, 100 OLD PALISADE HOLDINGS, LLC, 100 OLD PALISADE HOLDINGS II, LLC, 100 OLD PALISADE HOLDINGS III, LLC, EREZ BASHARI, PEIRU WEN, LENNY WARSHAW, NISSIM LANCIANO, SHARON CHRISTENBURY, JOSEPH ZDON, PABLO DE ALMAGRO, EPHRAIM BASHARI, SONNY KAHN, individually and as Trustee of the SK Business Trust, SK BUSINESS TRUST, RUSSELL W. GALBUT, individually and as Trustee of the RF Business Trust, RF BUSINESS TRUST, BRUCE A. MENIN, individually and as Trustee of the MENIN 1998 FAMILY TRUST, MENIN 1998 FAMILY TRUST, Defendants/Third-Party Plaintiffs,
v.
APPLIED PROPERTY MANAGEMENT CO., INC., a/k/a APPLIED DEVELOPMENT COMPANY, IRONSTATE DEVELOPMENT COMPANY, a/k/a IRONSTATE DEVELOPMENT, LLC, IRONSTATE HOLDINGS, LLC, COSTAS KONDYLIS & ASSOCIATES, P.C., COSTAS KONDYLIS & PARTNERS, LLP, CONSTANTINE A. KONDYLIS, a/k/a COSTAS KONDYLIS, GOLDSTEIN ASSOCIATES CONSULTING ENGINEERS, P.C., Defendants/Third-Party Defendants. AJD CONSTRUCTION CO., INC., Third-Party Plaintiff,
v.
PATWOOD CONTRACTING CO., INC., d/b/a PATWOOD ROOFING, MTA CORP., MAARV WATERPROOFING, INC., BENFATTO CONSTRUCTION CORP., B&B IRON WORKS, INC., Third-Party Defendants. SOUTHSHORE CONTRACTING, INC., Third-Party Plaintiff,
v.
ARQ PAINTING & CONTRACTING, INC., Third-Party Defendant. APPLIED PROPERTY MANAGEMENT CO., INC., THE PALISADES A/V COMPANY, LLC, APPLIED PALISADES, LLC, APPLIED DEVELOPMENT COMPANY, INC., improperly pleaded as d/b/a APPLIED DEVELOPMENT COMPANY, IRONSTATE DEVELOPMENT, LLC, IRONSTATE HOLDINGS, LLC, Fourth-Party Plaintiffs,
v.
WENTWORTH PROPERTY MANAGEMENT CORPORATION, WORTHMORE CONSTRUCTION & MAINTENANCE CO., INC., Fourth-Party Defendants.

          Argued April 25, 2017

         On certification to the Superior Court, Appellate Division.

          Eric S. Schlesinger argued the cause for appellant Forsa Construction (Golden, Rothschild, Spagnola, Lundell, Boylan & Garubo, attorneys; Eric S. Schlesinger and Russ M. Patane, of counsel and on the briefs, and Francesca E. Cheli, on the briefs) .

          Stephen C. Cahir argued the cause for appellant Luxury Floors, Inc. (Law Office of William E. Staehle, attorneys; Stephen C. Cahir, on the brief).

          Mark D. Shifton argued the cause for appellant Benfatto Construction Corp. (Seiger Gfeller Laurie, attorneys; Mark D. Shifton of counsel and on the briefs, and Chester D. Ostrowski, on the brief).

          John H. Osorio argued the cause for appellant AJD Construction Co., Inc. (Marshall Dennehey Warner Coleman & Goggin, attorneys; John H. Osorio, Walter F. Kawalec, III, and Pauline E. Tutelo on the briefs) .

          Raymond A. Garcia of the Connecticut bar, admitted pro hac vice, argued the cause for respondent (Lum, Drasco & Positan and Garcia & Milas, attorneys; Paul A. Sandars, III, of counsel and on the brief, and Raymond A. Garcia, and Nicole Liguori Micklich, of the Connecticut and Rhode Island bars, on the brief).

          Gene Markin argued the cause for amicus curiae Community Association Institute (Stark & Stark, attorneys; Gene Markin and John Randy Sawyer, on the brief).

          Michael S. Zicherman submitted a brief on behalf of amicus curiae Associated Construction Contractors of New Jersey (Peckar & Abramson, attorneys; Charles F. Kenny, of counsel, and Michael S. Zicherman, of counsel and on the brief).

         SYLLABUS

          ALBIN, J., writing for the Court.

         Plaintiff, The Palisades at Fort Lee Condominium Association, Inc., filed lawsuits alleging that defendants, the general contractor and three subcontractors, defectively constructed a building complex now under the Condominium Association's control. The issue is whether plaintiff filed the lawsuits before the expiration of the statute of limitations.

         In December 1999, Palisades A/V Acquisitions Co., LLC retained AJD Construction Co., Inc. to serve as the general contractor on the project. AJD then hired various subcontractors, including Forsa Construction, Inc., Benfatto Masonry, Inc., and Luxury Floors, Inc. The chief architect on the project certified that The Palisades was "substantially complete" as of May 1, 2002. For the next two years, A/V rented units in The Palisades complex. In June 2004, A/V sold The Palisades to 100 Old Palisade, LLC (Old Palisade), which converted the rental apartments and units into condominiums. Old Palisade retained Ray Engineering, Inc. to inspect the common elements of the property. Ray Engineering issued a report dated October 1, 2004 (the Ray Report), stating: "Generally, the structure of the building, townhomes and parking deck appeared to be in good condition."

         Old Palisade did not relinquish control of the Condominium Association to the unit owners until seventy-five percent of The Palisades' units had been sold. That occurred in July 2006. The Condominium Association then retained the Falcon Group to inspect The Palisades' common elements. The Falcon Group issued a report on June 13, 2007 (the Falcon Report), detailing construction-related defects.

         Based on the Falcon Report, the Condominium Association filed a series of complaints in the Law Division that generally allege that defendants breached express and implied warranties of good workmanship, habitability, and merchantability and performed their duties negligently. Defendants moved for summary judgment, alleging that plaintiff filed its claims beyond the six-year statute of limitations, N.J.S.A. 2 A: 14-1.

         The trial court granted defendants' motions and dismissed plaintiff's complaints as time-barred. The court found that the statute of limitations began to run upon substantial completion of The Palisades-May 1, 2002. In the trial court's view of the discovery rule, the Condominium Association had sufficient time within the six-year limitations period to bring its claims against defendants.

         A panel of the Appellate Division rejected the trial court's conception of how the discovery rule operates in construction-defect cases. According to the panel, the "causes of action against defendant contractors did not accrue until June 13, 2007, when the unit-owner-controlled Board received Falcon's report." The panel concluded that plaintiff filed its complaints against defendants within the six-year period, which commenced on June 13, 2007.

         The Court granted defendants' petitions for certification. 7 N.J. 154');">227 N.J. 154 (2016); 227 N.J. 151 (2016); 227 N.J. 151 (2016); 227 N.J. 145 (2016).

         HELD: A construction-defect cause of action accrues at the time that the building's original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a claim. From that point, the plaintiff has six years to file a claim. A subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point. Here, the Court cannot determine when the accrual clock commenced for each defendant based on the record before it and accordingly remands to the trial court.

         1. N.J.S.A. 2A:14-1 provides that "[e]very action at law for . . . any tortious injury to real. . . property . . . shall be commenced within 6 years next after the cause of any such action shall have accrued." In construing accrual statutes, the Court has eschewed "a rigid and automatic adherence to a strict rule of law" that would produce unjust results. Lopez v. Swyer, 62 N.J. 267, 273-74 (1973). Under the discovery rule, "in an appropriate case a cause of action will be held not to accrue until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim." Id. at 272. (pp. 17-20)

         2. In Caravaggio v. D'Agostini, 166 N.J. 237');">166 N.J. 237, 246, 248 (2001), the Court gave the plaintiff the benefit of the full two-year limitations period from the date of accrual, even though she had over a year-and-one-half remaining on the statute of limitations if the starting date were fixed at the time of the allegedly negligent operation. Russo Farms v. Vineland Board of Education, 144 N.J. 84, 115 (1996), stands for the proposition that in a construction-defect case, the date on which an architect certifies to the owner that the structure is substantially complete typically will start the running of the six-year property-tort statute of limitations, N.J.S.A. 2A:14-1, unless, despite the exercise of reasonable diligence, the plaintiff is unaware of an actionable claim. Importantly, the Court in Russo Farms gave the plaintiffs the benefit of the full six-year limitations period, notwithstanding that the plaintiffs would have had four years to file their claims if the clock began at the time of substantial completion. Russo Farms and Caravaggio applied the same discovery-rule template to different accrual statutes. The Court therefore rejects defendants' argument that, so long as plaintiff discovered the basis for an actionable claim within six years from the date of substantial completion, plaintiff had to file within the time remaining in the limitations period, (pp. 20-27)

         3. The Court also rejects the approach taken by the Appellate Division-that the six-year statute of limitations could not accrue before plaintiff gained full control of the Condominium Association. The statute-of-limitations clock is not reset every time property changes hands. However, if the original owner was unaware of an actionable claim, despite the exercise of reasonable diligence, then the accrual clock begins when a subsequent owner knew or reasonably should have known of the existence of the claim. A cause of action, for purposes of N.J.S.A. 2A:14-1, accrues when someone in the chain of ownership first knows or reasonably should know of an actionable claim against an identifiable party. A condominium association is not exempted from this long-standing rule. (pp. 27-30)

         4. Based on the record, the Court cannot perform the accrual calculation because it requires findings of fact to determine when A/V Acquisitions, Old Palisade, or the Condominium Association-all entities in the chain of ownership-first knew or, through the exercise of reasonable diligence, should have known of a cause of action against each defendant. Whether the accrual clock began when the Ray Report or the Falcon Report issued or at some time before, after, or in between requires a detailed inquiry. To answer those questions, the trial court must conduct a Lopez hearing and examine the documentary evidence and deposition transcripts presented by the parties and, in its discretion, take testimony from relevant witnesses, (pp 30-32)

         5. The Legislature enacted the statute of repose in construction-defect cases, N.J.S.A. 2A: 14-1.1(a), to insulate construction professionals from indefinite liability through operation of the discovery rule. The ten-year repose statute begins at the date of a project's substantial completion and sets the outer limit for the filing of a construction-defect claim. The complaints against all defendants were filed within this ten-year period. Therefore, N.J.S.A. 2A:14-l.l(a) does not stand as abarto plaintiff's claims, (pp. 32-34)

         6. In summary, the date that a structure is deemed substantially complete oftentimes is when a cause of action accrues. But many construction defects will not be obvious immediately. In such instances, a cause of action does not accrue until the plaintiff knows or, through the exercise of reasonable diligence, should know of a cause of action against an identifiable defendant. A plaintiff who is a successor in ownership takes the property with no greater rights than an earlier owner. If the earlier owner knew or should have known of a cause of action against an identifiable defendant, the accrual clock starts then. The determination of when a claim accrued ordinarily should be made at a Lopez hearing. At the hearing, the plaintiff will bear the burden of proving that the claim accrued at a time after a project's substantial completion, (pp. 34-35)

         The judgment of the Appellate Division is REVERSED. The matter is REMANDED to the trial court for proceedings consistent with this opinion.

          CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE ALBIN's opinion.

          OPINION

          ALBIN JUSTICE.

         Plaintiff, The Palisades at Fort Lee Condominium Association, Inc., filed lawsuits alleging that defendants, the general contractor and three subcontractors, defectively constructed a building complex that is now under the Condominium Association's control. The issue before us is whether plaintiff filed the lawsuits before the expiration of the statute of limitations.

         N.J.S.A. 2A:14-1 is a statute of limitations generally governing tort-based property-damage claims. Under that statute, a construction-defect action must be commenced within six years "after the cause of any such action shall have accrued." Ibid. The heart of the controversy in this case is the point at which plaintiff's causes of action "accrued."

         The trial court determined that the six-year statute of limitations began to run in May 2002, when the building was substantially complete. Applying its conception of the discovery rule, the court found that the building's owners knew or reasonably should have known of any defects within the six-year period and therefore should have filed the lawsuits by May 2008. Because the Condominium Association did not initiate the first lawsuit until after that date, the court dismissed the actions against all defendants.

         The Appellate Division reversed, concluding that the Condominium Association's claims accrued in June 2007, when it undertook full unit-owner control of the building and became "reasonably aware" of actionable claims of construction defects based on the report of a construction expert it had retained. The Condominium Association filed all complaints against defendants within six years of that date.

         We now hold that neither the trial court nor the Appellate Division applied the correct legal standard for determining when the construction-defect actions accrued pursuant to N.J.S.A. 2A:14-1. Although N.J.S.A. 2A:14-l's six-year statute of limitations typically commences upon substantial completion of a structure, the discovery rule applies to the accrual of a claim under N.J.S.A. 2A:14-1. Under that rule, the limitations clock does not commence until a plaintiff is able to discover, through the exercise of reasonable diligence, the facts that form the basis for an actionable claim against an identifiable defendant. Caravaggio v. D'Agostini, 166 N.J. 237');">166 N.J. 237, 246 (2001) .

         Over time, as in this case, ownership of a building may change hands. A construction-defect lawsuit must be filed within six years from the time that the building's original or subsequent owners first knew or, through the exercise of reasonable diligence, should have known of the basis for a cause of action. A subsequent owner stands in no better position than a prior owner in calculating the limitations period. If a prior owner knew or reasonably should have known of a basis for a construction-defect action, the limitations period began at that point.

         In light of the legal paradigm just articulated, we cannot determine when the accrual clock commenced for each defendant based on the record before us. Accordingly, we remand to the trial court to conduct a Lopez[1] hearing and to make findings of fact to settle that issue.

         I.

...


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