Missed the Starting Gun? Application of the Statute of Repose in Construction and Defective Product Cases

On April 30, 2015, the New Jersey Supreme Court decided State of New Jersey v. Perini Corporation, et al., which is likely to become a seminal case on how the ten-year limitations period of New Jersey’s Statute of Repose is applied in construction cases, in particular those involving multi-phase projects. The Perini case is also noteworthy for its ruling that the statute of repose does not apply to claims against manufacturers and suppliers of allegedly defective materials supplied on a project.

In February 1995, the State retained Perini Corporation to design and build a 26 building correctional facility. L. Robert Kimball & Associates, Inc. acted as the architect and engineer on the project, and Natkin & Company was the principal contractor for heating, ventilation, and air conditioning. The project included an underground high-temperature hot water distribution system (“HTHW”) to serve the entire facility. It also included a central plant from which the hot water was distributed to the various buildings that comprised the project. Perma-Pipe, Inc. manufactured the underground piping used in the HTHW system, and Jacobs Facilities, Inc. was retained by the State to provide construction oversight services throughout the entire project.

The project was designed to be constructed in three phases. Phase I encompassed the central plant which contained the boilers and heat exchangers for the HTHW system. Certificates of substantial completion for those various elements were executed on May 16, 1997. Phase IIA included several other buildings, with certificates of substantial completion for those buildings executed between July 15, 1997 and October 27, 1997. Phase II encompassed approximately ten buildings, including a minimum-security unit and a garage. The certificates of substantial completion for the minimum-security unit and the garage identify May 1, 1998 as the date of substantial completion. The various buildings comprising the project were connected to the HTHW distribution system as they were completed. A certificate of substantial completion was not issued specifically for the HTHW system.

On April 28, 2008, the State filed a complaint against Perini, Kimball, Natkin, Jacobs, and Perma-Pipe in which it claimed that the HTHW system had failed on several occasions as a result of various defects. The State alleged that the first failure occurred in March 2000 with several other failures subsequent to that date. The State asserted breach of contract against Perini, negligence and professional malpractice against Kimball, negligence and breach of contract against Natkin, and breach of contract against Jacobs. Against Perma-Pipe, the State asserted a claim under the New Jersey Products Liability Act (“PLA”), as well as breach of implied warranties, negligence, and strict liability in tort.

All defendants moved for summary judgment on the basis that the Complaint was time barred under the statute of repose because it was brought more than ten years after the first phases of the project were substantially complete. The State argued that the date of substantial completion of the project was not until May 1, 1998 at the earliest, the date a Certificate of Substantial Completion was issued for the final Phase. The trial court granted defendants’ motions, relying primarily on the occupancy of inmates at the facility on or before April 28, 1998. However, the trial court denied Perma-Pipe’s motion for summary judgment, concluding that it was a manufacturer of goods and therefore its liability was governed by the PLA and the statute of repose did not apply to it.

The State and Perma-Pipe appealed the trial court’s decision, and the Appellate Division reversed the trial court’s order granting summary judgment to Perini, Kimball, Natkin, and Jacobs and affirmed the order denying summary judgment to Perma-Pipe. The Appellate Division held that the statute of repose does not provide for separate trigger dates for components of a project but begins to run when the entire project is substantially complete, which here was no earlier than May 1, 1998, the substantial completion date for the last phase of the project.

The New Jersey Supreme Court affirmed the Appellate Division’s decision, holding that the statute of repose does not begin to run on claims involving an improvement that serves an entire project such as the HTHW system “until all buildings served by the improvement have been connected to it.” Regarding the claims against Perma-Pipe, the court held that the statute of repose was inapplicable because those claims related solely to manufacturing defects, which are not covered by the statue of repose but subject to the PLA.

Regarding the claims against Perma-Pipe, the Court found that manufacturers and sellers of standardized products are not subject to the statute of repose but are covered by the statute of limitations applicable to the PLA. The Court indicated that had Perma-Pipe also installed the pipe instead of just supply it, it would be subject to both the PLA and statute of repose, but Perma-Pipe’s technical assistance and support during installation by a separate contractor did not rise to the level of installation to put it within the reach of the statute of repose.

While the New Jersey Supreme Court’s decision in Perini is good for owners in that it provides a more advantageous view on when substantial completion on a multi-phase project occurs, the sound practice is to assert claims as soon as practicable to avoid any statute-of-limitation challenge. Filing claims sooner rather than later also decreases the impact of the passage of time on witnesses’ memories and the unavailability of written evidence.

Lisa Lombardo is Counsel in the Gibbons Business & Commercial Litigation Department. Robert J. MacPherson, a Director in the Gibbons Business & Commercial Litigation Department, co-authored this post.
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