Hilliard & Bartko Joint Venture v. Fedco Systems, Inc.

RODOWSKY, Judge. At issue here is when limitations began to run in this building construction case on claims asserted in arbitration by the owners against the architect and builder. In Frederick Contractors, Inc. v. Bel Pre Medical Center, Inc., 274 Md. 307, 314 , 334 A.2d 526, 530 (1975), we held that “it is for the courts and not the arbitrators to determine the timeliness of a demand for arbitration____” Here the legal position of those defending the claims is that limitations began to run when the owners discovered that they might have one or more causes of action. The owners, although not disputing when “discovery” occurred, nevertheless assert that they have claims against the builder and against the architect which did not accrue until after “discovery.” Appellants, Don Hilliard and John H. Bartko, as joint venturers (H & B), own an 80,000 s.f. building, constructed from preengineered, metal sections and containing both warehouse and office space, which is leased to the appel ¹⁵¹ lants’ incorporated moving and storage business.

Appellees are the architect, Fedco Systems, Inc. (Fedco), and the general contractor, Gardiner & Gardiner, Inc. (Gardiner). Fedco and Gardiner each contracted separately with H & B. 1 Fedco agreed to design and to supervise construction of the building, and Gardiner agreed to construct it. Each contract contained an arbitration clause. The party demanding arbitration was required to do so no later than the date by which the applicable statute of limitations would bar institution of legal or equitable proceedings based on the claim. 2 ¹⁵² The building was plagued by leaks that were observed before construction was completed.

Eventually, H & B sued both Fedco and Gardiner in the Circuit Court for Prince George’s County. That complaint alleged that the leaks were caused by negligence of Gardiner during construction, and by negligence of Fedco in designing the building and in supervising construction. H & B also alleged that Gardiner had breached its contract by failing to provide a watertight building. Fedco and Gardiner sought to compel arbitration of the claims against them, and the court ordered arbitration.

Four months later H & B filed demands for arbitration. Fedco and Gardiner then filed the subject actions seeking permanently to enjoin the arbitrations because H & B’s demands were barred by limitations. Judgment was for Fedco and Gardiner. The trial court found that H & B knew that the building leaked more than three years before the demands for arbitration were filed. 3 H & B appealed to the Court of Special Appeals, which affirmed in an unreported opinion.

We granted H & B’s petition for certiorari which accepts fact-findings of the trial court and raises only questions of law. The following chronology is relevant. November 6, 1980 — Punch list inspection of building by representatives of contractor and of architect and by a partner of H & B. ¹⁵³ November 7, 1980 — Letter from Fedco to Gardiner itemizing “items ... noted as being defective or needing further attention!,]” including: "Repair multiple roof leaks in the warehouse area and single roof leak in the office area of the building.” December 3, 1980 — Inspection of building made by representatives of H & B, Fedco, and Gardiner. Resulting punch list includes two items relating to leaks in the building.

Same — Date found by trial court as the date by which building was substantially complete and ready for occupancy. December 19, 1980 — H & B is occupying office portion of building, storing some materials in warehouse portion, and paying electric bill. Same — Latest date, as found by trial court, by which substantial completion, substantial payment by H & B, and partial occupancy had all occurred. Same — Date argued by Gardiner and Fedco to be the latest date by which limitations began to run.

January 12, 1981 — Representative of Gardiner makes affidavit on requisition for final payment reflecting a balance of $163,978 on contract sum of $1,519,634. February 4, 1981 — Fedco approves final payment to contractor. 4 February 18, 1981 — Letter from Gardiner to Fedco confirming that all punch list items were completed. February 20, 1981 — Letter of February 18 transmitted by architect to H & B. February 23, 1981 — Letter from H & B to Fedco, with copy to Gardiner, stating that building continues to leak “from numerous points in the roof and around many of the skylights!,]” and through the walls. H & B states that Gardiner’s work cannot be considered “final.” February 27, 1981 — Letter from Gardiner to H & B acknowledging responsibility for leaks that appear within one year, promising future corrective efforts, and requesting release of final payment.

March 1981 — During this month Gardiner receives final payment from H & B. January 8, 1982 — Fedco issues certificate of substantial completion as of December 1, 1980. Certificate was backdated after architect determined from review of files that substantial completion had been achieved on or about December 1, 1980. ¹⁵⁴ February 16, 1982 — Letter from Fedco to H & B reflecting that H & B had not paid balance of fee for architectural services. March 23, 1983 — H & B sues Fedco and Gardiner in the Circuit Court for Prince George’s County. August 26, 1983 — Circuit Court orders arbitration.

December 28, 1983 — H & B files with the American Arbitration Association (AAA) demands for arbitration against Fedco and Gardiner. The parties have assumed that the “applicable statute of limitations,” as the quoted words are used in the arbitration clauses, is Md.Code (1974, 1984 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article (CJ). It reads: A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced. With December 28, 1983, as the agreed date of commencement of the arbitrations, the issue is whether H & B’s claims “accrued” before December 27, 1980.

Conceptually those claims may sound in both contract and tort against Fedco and Gardiner respectively, unless, as Fedco argues, H & B has limited the claims it may assert in arbitration by the allegations of the circuit court complaint previously filed by it. ¹⁵⁵ I In this part we shall consider whether limitations bar a claim by H & B in contract against Fedco. But, first, we consider a procedural point raised by the architect. A Fedco points out that H & B’s circuit court complaint filed on March 23, 1983, claimed against the architect in tort alone, and Fedco argues that no contract claim against it is involved in the arbitration. In its demand for arbitration, however, H & B described the nature of the dispute with Fedco as follows: Alleged breach of contract and negligence in the design and construction of warehouse leased to District Moving and Storage Company, Inc. as claimed in Law Number 83-1287, Circuit Court for Prince George’s County, Maryland with respect to which respondent has enjoined prosecution in Equity Number 83-0899, Circuit Court for Prince George’s County, Maryland.

The H & B-Fedco contract submits to arbitration “[a]ll claims, disputes and other matters in question between the parties to this Agreement, arising out of, or relating to this Agreement or the breach thereof....” The arbitration clause incorporates the Construction Industry Arbitration Rules of the American Arbitration Association. Rule 7 (Jan. 1, 1981, ed.), “Initiation under an Arbitration Provision in a Contract,” provides that the notice of arbitration “shall contain a statement setting forth the nature of the dispute____” Id. at 6. Rule 8, “Change of Claim or Counterclaim,” provides: After filing of the claim or counterclaim, if either party desires to make any new or different claim or counterclaim, same shall be made in writing and filed with the AAA____ However, after the arbitrator is appointed no new or different claim or counterclaim may be submitted without the arbitrator’s consent. [Id. at 6-7.] ¹⁵⁶ Although H & B’s demand for arbitration describes the dispute as including an alleged breach of contract, the complaint in the civil action to which that demand also refers does not plead a contract claim against Fedco. The issue of whether a demand in this form limits the scope of an arbitration is an issue within the very broad submission of the arbitration clause and is for the arbitrator to decide.

See generally Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96 , 468 A.2d 91 (1983). Further, even if the demand for arbitration were interpreted to exclude breach of contract, the AAA Construction Industry Rules make certain provisions for amendment. Application of those rules is for the arbitrator. Consequently, our only concern under Bel Pre, supra, is whether any H & B claim, including breach of contract, can survive the bar of limitations when H & B admittedly knew of leaks in the building more than three years before demanding arbitration.

B The contract between Fedco and H & B divides the basic services to be rendered by the architect into five phases: schematic design, design development, construction documents, bidding or negotiation, and construction phase-administration of the construction contract. Fedco’s duties in the construction phase included endeavoring “to guard the Owner against defects and deficiencies in the Work of the Contractor” (¶ 1.1.14), and exercising authority “to reject Work which does not conform to the Contract Documents” (¶ 1.1.17). Paragraph 1.1.20 of the contract further provides: The Architect shall conduct inspections to determine the Dates of Substantial Completion and final completion, shall receive and review written guarantees and related documents assembled by the Contractor, and shall issue a final Certificate for Payment. ¹⁵⁷ The inspection to determine final completion and the issuance of the final certificate of payment did not take place until after December 27, 1980. H & B submits that limitations did not begin to run on any of its claims against the architect until Fedco had completed rendering all of the services which it had promised.

Our cases have called this approach to a limitations issue the “continuation of events” theory. See Booth Glass Co. v. Huntingfield Corp., 304 Md. 615 , 500 A.2d 641 (1985) (continuation of events theory does not defer running of limitations on owner’s claim asserting negligence in original glass installation against subcontractor which thereafter had been endeavoring to correct the defective work); Waldman v. Rohrbaugh, 241 Md. 137 , 215 A.2d 825 (1966) (medical malpractice; continuation of events discussed; discovery rule applied). H & B rests its argument on the two Maryland decisions which may have applied the continuation of events theory, Vincent v. Palmer, 179 Md. 365 , 19 A.2d 183 (1941) and W.B. & A. Electric R.R. v. Moss, 130 Md. 198 , 100 A. 86 (1917). Vincent involved a Great Depression era contract under which a mechanical engineer obtained first call on the plaintiff’s services by promising the plaintiff ten percent of profits.

The engineer did not specify when the plaintiff’s share of the profits would be paid. Suit was brought after the arrangement had continued for almost seven years. We held that limitations did not run “until an accounting is made or [plaintiff’s] services are ended.” 179 Md. at 375 , 19 A.2d at 189 . In Moss the contract, which was between principal and agent for the latter to obtain a lease for the former on certain premises, also failed to specify date of payment.

The agent initially obtained the lease in his own name and a month later assigned it to the principal. The critical date three years prior to suit fell after the lease was obtained by the agent but before the assignment. Because there were conflicting inferences from the evidence, limita ¹⁵⁸ tions in that case was a question of fact and the action was remanded. H & B emphasizes the following statement from Moss : The general rule seems also settled that in the computation of the statutory period, in cases where there is an undertaking which requires a continuation of services, or the party’s right depends upon the happening of an event in the future, the statute begins to run only from the time the services can be completed or from the time the event happens.

Angell on Limitations, sec. 120; Wood on Limitations, 325-330. [ 130 Md. at 204-05 , 100 A. at 89 .] We have a number of reservations about the applicability of the holdings in Vincent and in Moss to H & B’s claim here. Because the contracts for the rendering of services in those two cases were not specific as to when payment for services was due to be made, the opinions can be read to stand for no more than that limitations did not begin to run until payment was due. See, e.g., 1 H. Wood, A Treatise on the Limitation of Actions at Law & in Equity § 120, at 673 (D. Moore 4th ed. 1916) (“Under an ordinary contract for services for a stated period, whether long or short, no time for payment being agreed upon, the right of action accrues immediately upon the completion of the term of service.”). Nor is it at all clear that the continuation of events theory postpones the running of limitations against the party for whom the services were rendered on that party’s claim that the services as rendered did not conform to the contract.

On the other hand, a trial court in New York has held that an owner’s malpractice action against an architect was not barred by limitations where the architect, after final payment had been made to the contractor, participated in efforts attempting to correct a leaking roof. The court analogized to New York’s “continuous treatment” exception to time of accrual which had been applied in medical malpractice actions. See County of Broome v. Vincent J. Smith, Inc., 78 Misc.2d 889 , 358 N.Y.S.2d 998 (1974). ¹⁵⁹ We need not resolve these questions in this case, however, because CJ § 5-108(b)-(e), the special statute of repose for claims against architects, professional engineers, and contractors, does not permit use of the continuation of events theory as H & B would have it applied here. For example, in its civil action H & B alleged malpractice by Fedco in the design of the building.

Prior to December 27, 1980, H & B was on notice that a design defect might be causing the leaks. Absent the operation of the discovery rule or of a continuation of events theory, an owner’s cause of action for improper design by architects accrues when the plans are finally approved. See Comptroller of Virginia ex rel. Virginia Military Institute v. King, 217 Va. 751, 759 , 232 S.E.2d 895, 900 (1977).

In this case the discovery rule likely postponed the start of limitations beyond the date of plan approval, but, under the trial court’s findings, not to as late as December 27, 1980. By that date at the latest limitations had begun to run against H & B’s accrued claims against Fedco by virtue of § 5-108. In relevant part § 5-108 reads: (b) A cause of action for damages does not accrue and a person may not seek contribution or indemnity from any architect, professional engineer, or contractor for damages incurred when ... injury to real ... property, resulting from the defective ... condition of an improvement to real property, occurs more than 10 years after the date the entire improvement first became available for its intended use. (c) Upon accrual of a cause of action referred to in subsectionf ] ...

(b), an action shall be filed