MSC: Statute of repose doesn’t apply to a breach of contract claim

The limitations period for breach of contract claims against contractors, architects and/or engineers related to improvements is governed by the breach of contract statute, MCL 600.5807(8), rather than the statute of repose, MCL 600 5839(1), the Michigan Supreme Court ruled in Miller-Davis Co. v. Ahrens Construction, Inc.

In the case, the plaintiff, a general contractor, filed a breach of contract claim against the defendant, a subcontractor hired to rebuild the roof of a YMCA building in Battle Creek. The claim alleged that the defendant’s work didn’t meet specifications, a condition that wasn’t discovered until the roof was removed to repair it. The plaintiff didn’t allege any defective or unsafe condition, only that it wanted indemnification for having to fix the roof itself.

The problem was that the claim was filed more than six years after the YMCA took occupancy. The statute of repose protects contractors from actions “to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death arising out of the defective and unsafe condition of an improvement to real property. …” Under the statute, the limitations period expires six years after occupancy.

Plaintiff said the statute didn’t apply because it was a breach of contract claim, so the statute of repose doesn’t apply.

The two statutes each allow a six year limitation period, so what’s the difference, you ask? It’s when the clock starts ticking. A statute of repose claim accrues on the date of “occupancy of the completed improvement, use or acceptance of the improvement,” while the clock for a breach of contract claim starts on the day the claim accrues.

The Supreme Court agreed with the plaintiff, essentially adopting a 6th U.S. Circuit Court of Appeals decision on the same issue in Garden City Osteopathic Hosp. v. HBE Corp. which used one of its own decisions, Huhtala v. Travelers Ins. Co., to arrive at its conclusion. The Huhtala court said an action founded on a “consensual” duty or breach of “express promise” isn’t a tort action, but a contract action.

We agree that the language of the provision strongly supports the conclusion that MCL 600.5839 does not apply to a breach of contract claim for a defect in a building improvement. We conclude that the Legislature intended the provision to be limited to actions in tort. Thus, it does not apply to a claim against an engineer or contractor for a defect in an improvement when the nature and origin of the claim is the breach of a contract.

The court overruled the Court of Appeals’ 1992 decision in Michigan Millers Mut. Ins. Co. v. West Detroit Bldg Co. which found the opposite in dictum.

By expanding the scope of MCL 600.5839 to contract actions, Michigan Millers blurred the critical distinction between third-party tort claims and contract claims between parties to an express contract. It expanded the applicability of the statute beyond any arguable legislative intent. Furthermore, its holding exceeded that necessary to resolve the issues involved. In sum, the Court of Appeals in this case relied on Michigan Millers for a proposition that is unsubstantiated. We overrule Michigan Millers and Travelers Ins Co. [v. Guardian Alarm, which relied upon Michigan Millers] because they are inconsistent with § 5839.

Applying its interpretation of the statutes, it found the plaintiff’s claim didn’t fall under the statute of repose.

There was no allegation that the roof deck system caused any “injury to property” or “bodily injury or wrongful death.” Nor was there any allegation of a “defective and unsafe condition.” Rather, plaintiff claimed that, because defendant failed to build the roof to the agreed-upon specifications, plaintiff was forced to expend money repairing it. Thus, the damages involved in this case were not to plaintiff’s person or property, but rather to its financial expectations. A claim for damages for deficiencies in an improvement is not an “action to recover damages for any injury to property . . . or for bodily injury or wrongful death . . . .” It is a suit for breach of contract. Here, there was a contract. Plaintiff did not rely on a duty implied in law, but solely on the terms of the contract. Thus, defendant’s obligation to plaintiff arose out of the contract. Because plaintiff claimed that defendant breached the contract that defendant and plaintiff entered into, the six-year period of limitations for contract actions, MCL 600.5807(8), applies in this case.

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Supreme sniping about Pavlov and textualism

“Call me a textualist if you will, but I believe this Court should hold to its policy of strict application of statutes.”
Michigan Supreme Court Justice Michael F. Cavanagh, dissenting from the court’s denial of a motion to rehear Boodt v. Borgess Medical Center.

“Although I am heartened by Justice Cavanagh’s newly found receptivity to ‘textualism,’ he has, I fear, a ways to go before he fully gets the hang of it.”
Michigan Supreme Court Justice Stephen J. Markman, concurring with the majority in Boodt.

In Boodt, a medical malpractice case, the issue was whether plaintiff’s notice of intent to sue met statutory requirements, so that the subsequent filing of the complaint and service of process would have tolled the statute of limitations. In the original decision, the majority, citing Roberts v Mecosta Co. Gen. Hosp., 466 Mich. 57 (2002) (Roberts I), ruled that plaintiff’s notice of intent was defective and did not toll the statute of limitations under MCL 600.2912b(4).

Cavanagh, in his dissent, argued the notice was sufficient and if not, under MCL 600.2301, any error should be disregarded because the defendant-doctor’s “substantial rights” were unaffected. The doctor had notice of the suit and acknowledged in a deposition that he knew what the suit was about, Cavanagh argued.

On rehearing, Cavanagh said that the statute of limitations was tolled under the version of MCL 600.5856(a) that was in effect when plaintiff filed her case. Under that version, Cavanagh said, tolling commenced when plaintiff filed her complaint and served process.

According to Cavanagh:

“Section 5856(a) says nothing about compliance with the notice-of-intent statute.

“Justice Markman’s Pavlovian concurrence misses the point. The issue here is tolling. The most specific statute on this issue is § 5856, the tolling statute. The applicable section of the statute, § 5856(a), does not require compliance with § 2912b. Former § 5856(d), the statute at issue in Roberts I, did require compliance with § 2912b, but § 5856(d) applies ‘[i]f, during the applicable notice period under section 2912b, a claim would be barred by the statute of limitations or repose….’ That is not the case here. Plaintiff timely filed her notice of intent and her complaint. [Footnote 2: This is the critical factual distinction between this case and Roberts I]. Thus, § 5856(a) applies and the statute of limitations for plaintiff’s action was tolled when she filed her complaint and a copy of the summons and complaint was served on defendant.”

Cavanagh said that the court should “hold to its policy of strict application of statutes,” and if that means he is a textualist, so be it.

“This Court’s ruling in this case violates that policy by adding words to the statute requiring compliance with § 2912b. Section 2912b is not a tolling statute. It says nothing about whether a statute of limitations has or has not been tolled. To suggest that it does adds language to the statute.”

Markman fired back that:

“[A] more seasoned ‘textualist’ would not have overlooked the language of MCL 600.2912b(1), which states that a person ‘shall not commence an action alleging medical malpractice against a health professional or health facility unless the person has given the health professional or health facility written notice under this section not less than 182 days before the action is commenced.’ (Emphasis added.) Nor would a more seasoned ‘textualist’ have overlooked the language of MCL 600.2912b(4), which states that the ‘notice given to a health professional or health facility under this section shall contain a statement of at least all of the following . …’ (Emphasis added.) Thus, a more seasoned ‘textualist’ likely would have concluded that a plaintiff cannot commence an action before he or she has filed a notice of intent that contains ‘all’ the information required under § 2912b(4), and until this is done, he or she cannot file a complaint tolling the period of limitations.”

Markman concluded his lesson with these observations:

“Moreover, such a ‘textualist’ would also have recognized that more specific statutory provisions control over more general statutory provisions, and thus the specific requirements of § 2912b(1) regarding ‘commenc[ing] an action alleging medical malpractice’ prevail over the general requirements of MCL 600.1901 regarding the commencing of civil actions. Such an analysis admittedly would be partially premised upon the plain language of the law, partially upon logic, and partially upon rules of interpretation dating back several centuries, but, of course, no one who is not intent on caricaturing ‘textualism’ would doubt that all three of these considerations are among the tools of a ‘textualist.'”

And what about Cavanagh’s characterization of Markman’s concurrence as “Pavlovian?” Markman replied in a footnote:

“If by reference to a ‘Pavlovian concurrence’ my dissenting colleague intends to characterize this statement as a predictable and expected response to a judicial display of disregard for the language of a statute, then I suppose that his is an accurate characterization.”