Advisories & Insights

On January 10, 2005, the Washington Court of Appeals for Division 1 published an opinion affirming our client's dismissal on summary judgment of a three million dollar claim by a condominium homeowner's association.

In the underlying suit, our developer client was sued by a condominium association that claimed extensive damage caused by the usual assortment of alleged construction defects. The building was completed in late 1994; property damage was discovered in 2001, and suit was brought in May 2002. Despite the fact the statute of limitations had run on the plaintiff's breach of warranty claims under the Washington Condominium Act, the plaintiff creatively argued the developer could be liable under a theory of (1) fraudulent concealment, (2) misrepresentations in the Public Offering Statement ("POS"), or (3) breach of fiduciary duty (during the time our client controlled the association). Each of these claims avoided the statute of limitations by application of the discovery rule.

The Court affirmed the trial court's dismissal of the fraudulent concealment cause of action because there was no evidence the developer actually knew of the conditions it was alleged to have concealed. The Court held that the independent project manager, who was often at the site to determine the progress, as well as the general contractor, who maintained control of the project, were not the agents of the developer for purposes of imputing their knowledge to the developer. Moreover, there was insufficient evidence to raise an inference that either agent knew of the alleged defects in any event. The plaintiff also attempted to establish the developer's knowledge using an expert who opined that the defects would have been readily apparent. The Court was not swayed and held that the expert was an uninvolved party and his opinion was speculation and insufficient to defeat summary judgment.

The Court rejected plaintiff's argument that the POS requires disclosure of defects the developer "should have known" or required the developer to state a budget that included the cost to repair defects it "should have known." The Court agreed with our client that the Condominium Act has express provisions dealing with defects in construction; the provisions requiring disclosure of certain information were not intended to require disclosure of defects. As the Court said, "The interpretation urged by the Association is awkward, at best, and we must interpret statutes in a way so as to avoid any 'absurd or strained consequences.'"

Because the defects complained of could not have been known by any condominium board member appointed by the developer-the defective building methods occurred before the board was formed and remained concealed until after the developer turned over control of the board to the association - the developer could not have breached its fiduciary duty while it managed the board.

Notably, the BIAW (Building Industry Association of Washington) was amicus curiae in support of our client. The BIAW brief included strong policy arguments that the builder's statute of repose was intended by the Legislature to prevent the exact type of stale claims at issue in this case, by placing a reasonable time limit on the liability of developers and other construction industry defendants. The BIAW also reminded the Court that the Legislature had recently shown its displeasure when the courts fashioned remedies where those remedies were not due.

If plaintiff had succeeded here, it would have provided authority for other condominium associations to avoid the statute of limitations for construction defect claims under the Condominium Act. This opinion successfully fends off a creative attempt by plaintiff's attorneys to create a new cause of action-for "negligent failure to disclose defects"-under the Condominium Act and thereby extend the statute of limitations for defect claims. This opinion also should discourage future attempts to bring time barred claims under other tort theories absent a showing of actual knowledge on the part of the developer.

About the Bullivant Construction Practice Group

Greg Clark, a shareholder in the Seattle office, is a former general contractor who represents owners, contractors, and design professionals in construction claims, including delay, defect, lien, real estate, products, and injury claims. He can be reached at 206.521.6542 or greg.clark@bullivant.com.

Jerry Sale is a shareholder in the Seattle office and serves as Chair of Bullivant's appellate practice. His trial practice focuses on representing the interests of insurers on coverage and claim handling as well as insurance fraud. He also provides advice to insurers on coverage and claim handling. Mr. Sale has been named a "Super Lawyer" by Washington Law & Politics since 2000. He can be reached at 206.521.6418 or jerret.sale@bullivant.com.

Bullivant Houser Bailey PC represents owners (both public and private), developers, contractors, sureties, subcontractors, vendors, suppliers, and insurers, on all types of construction projects throughout the United States, including Oregon, Washington, California, Alaska, Idaho, Montana, Utah, Nevada, and Arizona. Our attorneys have trial experience in both state and federal courts.