This is a subject that will strike home with the surveying community, as it illustrates the current mindset (in Massachusetts, anyway) regarding the "discovery rule".
At first reading, I thought it said that IES (the defendant, a consultant that performed environmental testing and other services) was protected by its contract with the trust (its client), because of a specific term within the contract providing a 1 year limitation upon claims made. However, after reading it again, it looks like recent Massachusetts cases require an allowance for the discovery rule, and that any contract which does not provide an allowance for discovery is "unreasonable".
Al
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Shahin SHAHIN, trustee, [FN1] vs. I.E.S. INCORPORATED.
No. 12-P-1121.
May 31, 2013.
Limitations, Statute of. Practice, Civil, Statute of limitations, Claim barred by short statute of limitations.
Carmen A. Frattaroli for the plaintiff.
Louis Kroon, II, for the defendant.
RESCRIPT.
This is an appeal from a grant of summary judgment in favor of the defendant, I.E.S. Incorporated (IES), on claims under a contract that were brought by the plaintiff, Shahin Shahin, as trustee of the Hersey Street Properties Realty Trust (collectively, trust). The trust retained IES to conduct environmental testing and other services in connection with the trust's sale of a property in Salem. The contract was mailed by IES to the trust on March 21, 2006, and was signed and dated by the trust on April 27, 2006. [FN2] The contract included an attachment identified as "Attachment 'B' Statement of Terms and Conditions" (attachment B). Paragraph N of these terms and conditions states: "The [trust] agrees that the [trust] shall bring no claim against IES, Inc., and/or its owners, directors, officers, and employees, later than one (1) year after the date of this contract." The trust contends that IES did not fully perform under the contract and failed to comply with relevant Massachusetts Department of Environmental Protection (DEP) regulations and that this only came to the trust's attention when DEP issued a notice of noncompliance on July 24, 2009. The trust alleged unfair or deceptive practices under G.L. c. 93A, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, breach of contract, and negligence, and it sought a declaratory judgment that the contractual limitations period and a contractual cap on damages did not apply. The Superior Court judge concluded that the initial complaint, which was filed on December 14, 2010, was barred by the contractually-shortened limitations period. The trust appeals.
This case, in which the trust maintains it could not have known about the actions for which it brought suit until after the expiration of the contractual limitations period, is controlled in material respects by the Supreme Judicial Court's recent decision in Creative Playthings Franchising, Corp. v. Reiser, 463 Mass. 758 (2012), which was decided during the pendency of this appeal, and of which the Superior Court judge consequently did not have the benefit. Creative Playthings holds that, as a matter of Massachusetts law, a statutory limitations period can be shortened by contract so long as the shortened period is reasonable. Id. at 763. It also holds that "a contractual limitations provision that did not permit operation of the discovery rule would be unreasonable and, therefore, invalid and unenforceable." Id. at 764. See Protective Life Ins. Co. v. Sullivan, 425 Mass. 615, 631 (1997) (explaining the discovery rule tolls the statute of limitations "where the prospective plaintiff did not have, and could not have had with due diligence, the information essential to bringing suit").
The limitations period set out in the contract is one year from the date of the contract, and the contract's language on this point is unambiguous. The limitations period thus expired one year from the date of the contract-- regardless of the date of any alleged breach or its discovery. The provision thus does not permit operation of the discovery rule that the trust seeks to invoke. Under Creative Playthings, it is therefore invalid and unenforceable. Paragraph K of attachment B of the contract provides that "[t]he provisions of these Terms and Conditions are severable. The invalidity of any part of these Terms and Conditions shall not invalidate the remainder of these Terms and Conditions nor the remainder of any portion hereof." Consequently, the contractual limitations period must be struck and the statutory limitations applied.
IES argues that even if the one-year contractual limitations period were calculated using the discovery rule, based upon the date the trust has admitted it had actual knowledge of the alleged breach, the suit would still be barred, and that, on that basis, we should affirm even if we find the contractual limitations period invalid. Despite the surface appeal of this argument, the contract unambiguously states that the limitations period runs from the date of the contract, not the date of discovery. Neither party argues that there was any mutual mistake, see Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 756 (1993) (where there is mutual mistake, a contract may be reformed by the court to reflect the intent of the parties), nor does IES point to any other source of law that would provide us with authority to rewrite the contract so that the contractual limitations period would begin to run from the date of discovery.
IES also contends that several of the trust's causes of action would be barred under the statutory limitations periods IES argues are applicable. Even if IES is correct about the limitations periods that apply to each of those claims, something we do not decide, its argument depends on an assertion about the latest date on which the trust should have discovered it was harmed by IES's actions. This, however, is a disputed question of fact. Consequently, summary judgment on those claims is not appropriate. [FN3]
While we express no opinion of the ultimate merits of the suit, the summary judgment must be vacated and the case remanded for further proceedings.
So ordered.
FN1. Of the Hersey Street Properties Realty Trust.
FN2. The contract was signed by a prior trustee, Gary Katz.
FN3. IES's final claim, that the trust's amended complaint, filed one year after the filing of its initial complaint, is barred by laches, is also unavailing. A motion to amend is directed to the sound discretion of the trial judge, "but leave should be granted unless there are good reasons for denying the motion." Mathis v. Massachusetts Elec. Co., 409 Mass. 256, 264 (1991). Even assuming the statutory limitations period on one or more claims expired between the filing of the original complaint and the amended complaint, something we do not decide, given the liberality of the statutory rules governing the amendment of complaints pursuant to Mass.R.Civ.P. 15(a), 365 Mass. 761 (1974), see G.L. c. 231, § 51, the judge did not abuse his discretion in allowing the amendment.
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How could a contract be written so that it allows for operation of the discovery rule, yet doesn't effectively require unlimited and unending liability on the part of the land surveyor?
Maybe something along the lines of:
"no claim shall be made within 1 year of the date of this contract....provided, however, that in the case where discovery of a material error is not made within 1 year of the date of this contract, and where discovery is made following 1 year of the date of the contract, the limitation upon claims made shall be extended to 2 years after the date of the contract."
That would "allow for" the operation of the discovery rule, yet limit the effect of its duration. No?
I think you would have to make some provision for the clock to start after completion of the job. In the case at hand, what happens if IES were to take more than 1 year to finish? That would mean that the time to sue would be over before the work was done.
I am no lawyer or expert on MA law, but starting the clock at (substantial) completion might be better.
Agreed.
"How could a contract be written so that it allows for operation of the discovery rule, yet doesn't effectively require unlimited and unending liability on the part of the land surveyor?"
Most states have statutes that set the limits for professionals. Generally, the time starts on delivery of the service (map or report in the case of surveyors). A professional can not limit the time to less than the statute, regardless of how reasonable it might seem. These statutes usually have a provision for personal injury caused by professional negligence. If there is a personal injury, the time is probably from the date of injury.
The environmental company in your example is apparently not a professional corporation, and falls under general liability law. Of course Mass. might not have a professional liability law, but it seems likely they do.
What you want is a contract that recognizes both the long-term period of repose base upon the time the negligent act occurred and a short-term period of limitation based upon discovery.
Try flipping the thought process around. It'll provide better coverage.
"Any claim shall be made within one year of the discovery of damages caused by a negligent act or misrepresentation and in no case shall a claim for recovery of damages be made more than five years after the occurrence of the negligent act or misrepresentation causing the damage."
Or, something like that. I'm not a lawyer, so don't rely on it verbatim. It's best to fashion the language after a state statute or a quotation from a court case than to make it up on the fly like I just did.
JBS
Discovery Reality
The "Discovery Reality" some may have "discovered" or known is that no matter the contract or statutes, the one with the most money wins.
Mass General Laws Chapter 260 "Limitation of Actions" would appear to provide the statutory basis for determining whether and how long a cause of action would be allowed.
Section 2 would appear to provide a general six year statute of limitations (except for contracts executed under seal - interesting side note, if you sign your contract followed by "L.S." for Land Surveyor, it MIGHT be interpreted rather as "Locus Sigilli" or "in the place of the seal" and your contract might be subject to more stringency - in Massachusetts, 20 years by MGL 260/1)
Section 2B appears to be applicable to improvements of real property, and provides either a three year or six year statute of limitations.
Section 4 would appear to apply to professionals, but there is no specific language applying to surveyors or engineers, and no broad inclusive language that might include them. This section includes the oft referred to situation when a surgeon leaves a foreign object inside the body of his patient.
There may be other statutes involved here as well.
For those of you who have practiced in MA, I would be interested to know if you have found which of these statutes, or others, is applicable to your work.
By the way, Duane, I have seen several references now indicating that parties may shorten by contract the otherwise applicable statute of limitations. "Freedom of contract" is a matter of public policy that also must not be suspended.
The first paragraph of Chapter 260, Section 2B, reads as follows:
"Action of tort for damages arising out of any deficiency or neglect in the design, planning, construction or general administration of an improvement to real property, other than that of a public agency as defined in section thirty-nine A of chapter seven shall be commenced only within three years next after the cause of action accrues; provided, however, that in no event shall such actions be commenced more than six years after the earlier of the dates of: (1) the opening of the improvement to use; or (2) substantial completion of the improvement and the taking of possession for occupancy by the owner."
This would seem to be almost the same structure that you propose, JB. Thanks.
Apparantly MA professionals didn't get in on the tort reform movement in the 90's. But maybe it was not needed under the laws you list. Seems like reasonable limits. I think you would have trouble in some situations contracting to shorter time periods. I have seen it done as well, but really doubt it would be allowed unless maybe the contract is between licensed professionals, all of whom are licensed and sophisticated in the subject matter of the contract. The other place where these provisions tend to fail is showing a bargained for exchange of value for the provision. You might have to show a reduction in fee (or something like that) in exchange for a reduction in liability period.
Not an expert, just thinking out loud.
