Court Reminds Us That Shortened Limitations Period Must Be Reasonable

Back in February, we wrote about the case of Gibraltar Contracting, Inc. v. Tully Construction Co., Inc., where the parties attempted to shorten a statute of limitations period within their subcontract, but the appellate court declined to enforce that shortened period (although that period seemingly ran before the lawsuit was started) because the event which triggered the running of the limitations period was uncertain. After being sent back to the lower court, and after discovery, the court found that the shortened limitations period there was void because it was tied into a contingent payment provision.

Background

In September of 2014, Tully Construction entered into a contract with the Triborough Bridge & Tunnel Authority to rehabilitate the Hugh Carey Tunnel (formerly the Brooklyn-Battery Tunnel). Two months later, Tully entered into a subcontract with Gibraltar Contracting for the tiling scope of work. The contract included a shortened limitations period of six months from the owner’s issuance of a certificate of substantial completion or, if no such certificate was issued, then six months from the owner’s acceptance of the work.

Gibraltar performed its obligations under the contract, including extra work—including a $4.5 million change order resulting from Governor Cuomo’s last minute requirement to use “New York Blue” and “New York Gold” tiles, instead of the white tiles specified. Gibraltar was also impacted by delays, and it incurred costs accordingly. When payment for several open change orders and Gibraltar’s impact costs was not forthcoming, Gibraltar sued, seeking payment of over $5 million. Tully moved to dismiss the lawsuit as being too late, citing the shortened limitations period. It provided the court with a document on MTA letterhead, signed by its Chief Engineer, denominated as a “Certificate of Final Completion”, advising that Tully has fully performed its work, and recommending acceptance of the project. The motion court denied the motion, citing the provision of the contract that required either the issuance of a certificate of substantial completion or of final acceptance by the owner, noting that the document provided was only a recommendation that the owner accept the project, not the acceptance itself. Tully appealed, and the appellate court affirmed. In doing so, the appellate court agreed that the document provided was not the final acceptance of the project, but only a recommendation that it be accepted.

While the appeal was pending, discovery proceeded. After the decision on the appeal, Tully moved for summary judgment (which also permits the use of affidavit evidence), adding an affidavit from the Chief Engineer averring that by signing the “Certificate of Final Completion”, he was indicating the owner’s acceptance. Gibraltar opposed and cross-moved to dismiss the shortened limitations defense in its entirety, noting that the owner’s acceptance is not the only condition to triggering the period, but that there was also a continent payment provision which made Tully’s receipt of its final payment a condition precedent to its obligation to pay Gibraltar. In light of the combination of these two conditions, Gibraltar argued, the shortened limitations period was not reasonable because Gibraltar had no way to verify the running of the period. In reply, Tully argued that Gibraltar could have demanded its money at any time and started the period running for itself, and its failure to do so was fatal to its claims.

Decision

The court denied Tully’s motion and granted Gibraltar’s motion for summary judgment dismissing the defense. In doing so, the court cited appellate precedent holding that a contingent payment provision making the obligation to remit final payment downstream contingent on the general contractor’s receipt of money from the owner renders a shortened limitations period unreasonable because the subcontractor has no way to know when the shortened limitations period commences to run. Based on that established case law, the motion court was constrained to make a similar finding as to the unreasonableness of the shortened limitations period here.

Comment

The last time we addressed this issue, we noted the importance of making the event which triggers the shortened limitations period unequivocal. This time, we note that the event which commences the running of the limitations period also has to be ascertainable by the party which will be subject to the limitation. Stated simply, the triggering event cannot be something that the subcontractor would not ordinarily have knowledge of (such as when an owner remits payment to a general contractor). Stealth may be valuable if you’re flying a bomber against an enemy, but it cannot be something that a general contractor bakes into a contract in order to avoid an otherwise legitimate claim. Consulting with construction counsel in drafting and reviewing contracts so that you can be sure that any shortened limitations period passes the reasonableness test (and does not run before the claim accrues), how to best trigger the provision, and how to best timely assert any claims within that shortened period, could be very helpful. And, as always, please also study your contract at the beginning of the job—not at the end.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100