Importance and Effect of Statutes of Repose on Construction Claims

It has been said that a statute of repose provides defendants with “the certainty of the repose deadline” and “stands as an unyielding barrier to a plaintiff’s right of action.” A recent decision from the Georgia Court of Appeals provides an important reminder about just how unyielding that barrier can be and how important it is to keep statutes of repose in mind. In Southern States Chemical, Inc. v. Tampa Tank & Welding, Inc., the Court of Appeals held that the statute of repose codified at OCGA § 9-3-51 barred Southern States Chemical, Inc.’s (“Southern States”) claims against Tampa Tank & Welding, Inc. (“Tampa Tank”), the contractor hired to refurbish a storage tank, and Tampa Tank’s subcontractor, Corrosion Control, Inc. (“CCI”), the designer and tester of the tank’s cathodic protection system (“CP system”).

In 2000, Southern States contracted with Tampa Tank to renovate a storage tank that previously stored molten sulfur so that the tank could store sulfuric acid. The work was completed in January 2002. CCI did not assist with the installation of the CP system, but was responsible for designing and testing the system. CCI performed a post-installation commissioning inspection of the CP system shortly after the work was completed and prepared a report that indicated the system was working and properly installed. The CCI report also indicated that the system might work for 43 to 45 years, but that Southern States should perform annual inspections of the tank. CCI made no warranty representations to Southern States, and the CCI report was delivered to Tampa Tank, not Southern States.

On July 3, 2011, it was discovered that the tank was leaking from the base. Southern States filed suit in 2012, alleging that the leak was caused by “a defective or otherwise unsuitable cathodic corrosion protection system.” Tampa Tank and CCI argued that improper maintenance was the cause of the leak. The trial court initially granted summary judgment in favor of Tampa Tank and CCI, and Southern States appealed. The Court of Appeals of Georgia remanded the case to the trial court for a determination whether Tampa Tank and CCI were precluded from arguing that the statute of repose barred Southern States’ claims because of alleged fraudulent concealment of defects in the renovation, installation, and testing of the tank by Tampa Tank and CCI.

In July 2015, the trial court again granted Tampa Tank’s and CCI’s motion for summary judgment. Southern States appealed again, but the trial court’s judgment was affirmed.

Southern States then petitioned the Supreme Court of Georgia for a writ of certiorari, which was denied. However, Southern States also filed a fifth amended complaint in which Southern States raised claims for breach of contract under an express warranty and breach of contract, and sought recovery of its attorney and litigation costs. Tampa Tank and CCI filed dispositive motions, which were granted in the trial court’s final order. The trial court explained that Southern States’ breach of contract claims fell “within the ambit of OCGA § 9-3-51(a) under which [Tampa Tank and CCI] ha[d] already successfully asserted a statute of repose defense.” The trial court also held that the breach of contract claims were barred under the six-year statute of limitation applicable to written contracts because Southern States did not bring its claims until approximately ten years after substantial completion of the project.

On appeal, Southern States asserted numerous arguments, each of which were rejected by the Court of Appeals. First, Southern States argued that, in addition to the one-year warranty provided by Tampa Tank’s proposal letter, it was an intended beneficiary of Tampa Tank’s contract with CCI, and certain promises were made in favor of Southern Stated by virtue of CCI’s post-installation compliance report. The Court of Appeals disagreed and found that the only actionable warranty from which Southern States could seek relief was the one-year express warranty from Tampa Tank. The Court determined that neither Tampa Tank’s purchase order to CCI nor a letter from CCI to Tampa Tank included “any promises to or from Southern [States] regarding CCI’s services. Southern [States] was not a signatory on the … purchase order and was not invoiced by CCI for payment related to CCI’s services.” Moreover, Southern States did not cite any case law supporting the position that “payments made by a contractor to a subcontractor for services can be co-opted by a third-party beneficiary as consideration.” Consequently, Southern States’ only potential relief was found in the one-year warranty provided by Tampa Tank.

Second, Southern States argued that the statute of repose did not bar its claims against Tampa Tank. In considering the argument, the court summarily refused to reconsider Southern States’ first argument that the application of the statute of repose would be unconstitutional because “contractual obligations that extend beyond the period of repose should effectively waive the protections of the statute of repose, and to rule otherwise would impair the fundamental liberty of landowners to protect themselves by contract.”

Alternatively, Southern States argued that the trial court did not correctly apply the statute of repose to its contract and express warranty claims. Southern States contended that the renovation of the storage tank was not an improvement to realty. The Court disagreed with Southern States’ position and relied on the Georgia Supreme Court’s decision in Mullis v. Southern Co. Svcs. as the basis for disagreeing. In Mullis, the Court enumerated “commonsense factors” to consider when determining what constitutes an improvement of real property. These factors include whether the improvement is permanent in nature and adds value to the realty for the purposes for which it was intended to be used or whether the parties intended the improvement in question to remain personalty. Applying these factors to the case at hand, the court found that the conversion of the tank to store sulfuric acid was a significant undertaking that “materially enhanced the value of the realty.” As a result, Tampa Tank and CCI’s work to convert the tank was an improvement to realty within the meaning of OCGA § 9-3-51(a) and the trial court did not err in granting summary judgment.

In the second alternative, Southern States also argued that the statute of repose was inapplicable because its claims were not rooted in negligence or construction deficiency and were instead based on a breach of an express promise. The court determined that Southern States argument was a distinction without a difference and that the language of “the statute makes no distinction between claims sounding in negligence and those sounding in contract.” Instead, “the statute broadly precludes any action to recover damages brought outside the eight-year period of repose.” Because the tank was substantially completed in January of 2002 and Southern States did not initiate its lawsuit against Tampa Tank and CCI until January 2012, the claims were time-barred.

Contracting parties should be mindful of a couple of important lessons learned from this case. First, from a practical standpoint, there may seldom be any better tool to avoid costly damages (and expensive lawsuits) than a strong preventive maintenance program that identifies problems sooner rather than later. While the specific facts are not well-illuminated in the court’s opinions, perhaps more routine inspections of the tank would have identified the leak sooner. Second, contracting parties should be mindful of the applicable statute of repose. In many cases, as in this one, the statute of repose may begin to run well before the statute of limitations does, and while a statute of limitations may be tolled, a statute of repose may not be. While this may seem harsh, the statute of repose seeks to provide some level of certainty to parties that may be liable in any given situation. As such, all parties to a transaction should be mindful of the difficulty of identifying problems and potential claims that may arise out of a contract and should plan accordingly to take reasonable steps to mitigate against the risk a claim may be barred by the passing of time.

This article, "Importance and Effect of Statutes of Repose on Construction Claims" was published in the Bradley Construction and Procurement Law Newsletter for the second quarter of 2020.