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WSHB Colorado Update – The Colorado Court of Appeals Rules on Unanswered Tolling and Statue of Repose Questions Under Construction Defect Action Reform Act

February 7, 2012

On February 2, 2012, the Colorado Court of Appeals answered two previously unanswered questions under Colorado’s Construction Defect Action Reform Act (“CDARA”): 1) whether notice of construction defects to one party under the statute tolls the running of the statute of limitations as to parties not included in the notice; and 2) whether
the statute of repose (i.e. the outside time limit for bringing a construction defect claim) begins to run on a multi?phase construction project at substantial completion of the entire project, or as discrete improvements/components are completed. 

HOLDINGS

The Colorado Court of Appeals determined that the tolling provisions under CDARA operate to toll claims only against a party who receives actual notice of a claim under the statute. The Court also ruled that on a multi?phase construction project, the statute of repose runs as discrete improvements/components are completed. 

WHY THIS CASE IS IMPORTANT

Although the Court focused on the completion of the last building in this case, the Court’s ruling arguably provides support for the position that each building carries its own statute of repose trigger.  Overall, this case should make it easier for builders/developers to extricate themselves from untimely construction defect cases. At the same
time, builders/developers will have to notify implicated subcontractors even earlier than they had in the past.

FACTS OF THE CASE

Roslyn Court at Stapleton Homeowners Association (“the HOA”) alleged construction defects against the general contractor, Shaw Construction, LLC. Shaw hired United Builder Services to hang drywall and MB Roofing to install roofs, gutters and downspouts.

The project was built in three phases and included 80 residential units in 33 separate buildings, fifteen garage structures and additional elements such as sidewalks, alleys, benches, courtyards and landscaping.  The certificates of occupancy for each building were issued between September 24, 2003 and March 10, 2004. The architect certified completion of the entire project, including common areas, on June 8, 2004.

On May 15, 2007, Shaw received a timely Notice of Claim under CDARA from the HOA. On January 29, 2009, while Shaw and the HOA continued to try to work cooperatively to resolve the claims, the HOA filed suit against parties other than Shaw.  After the HOA and Shaw were unable to resolve the claim informally, Shaw was added as a party to the existing lawsuit on January 28, 2010. On March 29, 2010 Shaw filed an answer and a third party complaint naming United Builder Services and MB Roofing, among others, as third party defendants.

United Builder Services and MB Roofing moved for summary judgment on the basis that the six year statute of repose had run. They argued that substantial completion (the trigger for the 6 year statute of repose) occurred when each  subcontractor finished its particular work on the project, but in no event later than March 10, 2004 when the final certificate of occupancy was issued on the final building. Shaw argued that substantial completion had not occurred until the architect certified completion of the entire project on June 8, 2004. Shaw also argued that the Notice of Completion that Shaw had received from the HOA tolled all claims associated with the project, including those against the subcontractors, even though the subcontractors had not received actual notice of the claim by way of that notice. 

The trial court granted United Builders Services and MB Roofing’s motions for summary judgment, concluding that substantial completion occurred upon the issuance of the last certificate of occupancy.  The trial court also rejected Shaw’s tolling argument, saying that actual notice was required under the statute in order for tolling to occur.  Shaw appealed the rulings.  

In considering the arguments, the Colorado Appellate Court first ruled that the question of  when substantial completion has occurred is a question of law. This was also an unanswered question in
Colorado and that ambiguity had been used by Plaintiffs to great effect to avoid dismissal of claims that should have been dismissed in the past. This ruling will be a valuable tool in defending against untimely construction defect claims.  

The Appellate Court next addressed and rejected Shaw’s tolling argument. Shaw argued that the first notice of claim tolls all construction defect claims arising from that project. This is a position that has been accepted in many trial courts in Colorado, but the Appellate Court said “We discern ambiguity in the statute, but reject this assertion as contrary to the legislative intent.”

Next, the Appellate Court addressed the issue of substantial completion. The term substantial completion is not defined in CDARA, which has left room for a lot of disagreement (and inconsistent trial court rulings). The Appellate Court said in an unfortunately indecisive way, “Here, we conclude that an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings. Therefore, we need not resolve subcontractors’ argument that an improvement should be determined even more narrowly on a trade?by?trade basis.”  The Appellate Court was also regrettably ambiguous about its description of which buildings United Builders Services and MB Roofing worked on. The decision states that United Builders Services and MB worked on the last building that was completed, but does not say whether that was the only building those parties worked on. If it was the only building they worked on, then the Court’s focus on the last completed building has a different meaning than if they worked on all of the buildings. Nonetheless, the Appellate Court  concluded that United Builder Services and MB Roofing worked on “a discrete component ? the final building ? of the project.”  The Court went on to say that the drywall, roofs, gutters and downspouts installed by those parties were integral and essential to the function of that building, thereby making substantial completion of that building (rather than completion of those components) the trigger for the statute of repose.  Thus, the Court used the certificate of occupancy date of the final building ? March 10, 2004 ? as the very latest date the statute of repose began to run. That made Shaw’s March 29, 2010 third party complaint untimely by 19 days.  

Notably, the Appellate Court went on to say that whether a particular construction activity is an improvement to real property in and of itself (rather than being a part of a larger improvement) is a question of law. This portion of the ruling opens the door to motions for determination of law about whether a narrow portion of the construction is considered an “improvement” under the statute. We expect to see many of these motions in the near future.

 

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