Appletree Square I, Ltd. Partnership v. W.R. Grace & Co.

• Decision Date: 08 September 1994
• Docket Number: No. 93-3359,93-3359
• Citation: 29 F.3d 1283
• Parties: RICO Bus.Disp.Guide 8614 APPLETREE SQUARE I, LIMITED PARTNERSHIP; CRHC of Bloomington, Inc., its general partner; Crimark Office Building Associates, its general partner, Appellants, v. W.R. GRACE & CO., individually and as successor in interest to the Zonolite Company, Western Mineral Products Company, Inc., Multibestos Company, the Dewey & Almy Chemical Company, Universal Zonolite Company and the Grace Zonolite Division and all other predecessor companies, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1283

29 F.3d 1283

RICO Bus.Disp.Guide 8614

APPLETREE SQUARE I, LIMITED PARTNERSHIP; CRHC of

Bloomington, Inc., its general partner; Crimark

Office Building Associates, its general partner, Appellants, v. W.R. GRACE & CO., individually and as successor in interest

to the Zonolite Company, Western Mineral Products Company,

Inc., Multibestos Company, the Dewey & Almy Chemical

Company, Universal Zonolite Company and the Grace Zonolite

Division and all other predecessor companies, Appellee.

No. 93-3359.

United States Court of Appeals,

Eighth Circuit.

Submitted April 11, 1994.

Decided July 19, 1994.

Rehearing and Suggestion for Rehearing

En Banc Denied Sept. 8, 1994.

R. Terri Mandell, Minneapolis, MN, argued, for appellant.

Allen W. Hinderaker, Minneapolis, MN, argued, for appellee.

Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and LOKEN, Circuit Judges.

WOLLMAN, Circuit Judge.

Appletree Square I Limited Partnership, CRHC of Bloomington, Inc., and Crimark Office Building Associates Limited Partnership (collectively, "Appletree") filed a ten-count complaint against W.R. Grace & Company ("Grace"), seeking to recover costs of removing asbestos-containing fireproofing material from Appletree's commercial office building. The district court ¹ granted summary judgment in favor of Grace, holding that Appletree's nine state law claims were time-barred and that Appletree failed to establish a genuine issue of material fact regarding its standing to bring its claim under the Racketeer Influenced and Corrupt Organizations Act, as amended, 18 U.S.C. Secs. 1961-1968 (1988) ("RICO"). 815 F.Supp. 1266. We affirm.

When the office building was constructed in 1972 and 1973, Monokote III, an asbestos-containing fireproofing product manufactured by Grace, was sprayed on the structural steel. The original owner and architect sold the building to Appletree Square I Limited Partnership on September 21, 1981. Appletree discovered the presence of the asbestos-containing fireproofing in 1986.

Appletree filed the present action on June 29, 1990, alleging claims based on strict liability, negligence, nuisance, breach of warranties, misrepresentation and fraud, restitution, false advertising and consumer fraud, conspiracy, concert of action, and RICO. Grace was served on July 3, 1990.

I. State law claims

The Minnesota statute of limitations for improvements to real property ² applies to Appletree's state law claims, with the exception of its breach of warranty claims. ³ Minn.Stat. Sec. 541.051; see Metropolitan Fed. Bank of Iowa, F.S.B. v. W.R. Grace & Co., 999 F.2d 1257, 1261 (8th Cir.1993); Concordia College Corp. v. W.R. Grace & Co., 999 F.2d 326, 328-29 (8th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 926, 127 L.Ed.2d 218 (1994); Independent School Dist. No. 197 v. W.R. Grace & Co., 752 F.Supp. 286, 289 (D.Ct.Minn.1990); Independent School Dist. No. 622 v. Keene Corp., 495 N.W.2d 244, 248-49 (Minn.Ct.App.1993), aff'd in part and rev'd in part on other grounds, 511 N.W.2d 728 (1994). The statute includes a limitations period of two years from discovery of the injury and a statute of repose which cuts off the right of action ten years from substantial completion of the construction. Minn.Stat.Ann. Sec. 541.051, subd. 1(a) (West.Supp.1994).

Appletree argues that its action was timely because Grace fraudulently concealed knowledge of the hazardous nature of asbestos. Although a defendant's fraudulent concealment may toll the ten-year statute of repose, it does not toll the two-year limitation period which, by its terms, does not begin to run until discovery of the injury. See Wittmer v. Ruegemer, 419 N.W.2d 493, 497-98 (Minn.1988). Thus, even assuming that Grace's allegedly fraudulent conduct prevented Appletree from discovering the defective condition of the fireproofing within ten years of substantial completion of the building, Appletree's action is time-barred if it discovered its injury more than two years before bringing suit.

The district court concluded that, prior to July 3, 1988, Appletree discovered, or through the exercise of reasonable diligence should have discovered, that the asbestos in the building was a hazard in need of abatement. The court pointed to the following information which Appletree possessed by early March 1988:

1. an engineering and environmental testing organization's report which stated that asbestos was present in the building, listed its condition as "poor" because it was highly friable with the potential for future erosion, assumed some of the ceiling tiles had become contaminated with asbestos fibers and fallen debris, and recommended priority removal;

2. a law firm's letter discussing the hazards from asbestos exposure, state and federal regulations concerning asbestos levels, and abatement issues. The letter recommended the building be surveyed to determine whether the asbestos was a current health hazard;

3. an air sampling report showing that asbestos fibers were present in the air in the building and stating that any contamination of air by asbestos was a potential health risk; and

4. an environmental consulting firm's paper indicating that it was a mistake to rely on air sampling alone to detect the presence of asbestos.

Further, the district court noted that Appletree placed a "hold" on above-ceiling maintenance work in early 1988 in order to ensure that maintenance personnel and tenants would not disturb the fireproofing.

Appletree does not dispute these facts. Instead it argues that the two-year statute of limitations did not begin to run until November 1991, when it received test results showing elevated levels of contamination above the ceiling tiles, ⁴ relying on MDU Resources Group v. W.R. Grace & Co., 14 F.3d 1274 (8th Cir.1994). In MDU, we held that, under North Dakota law, the issue for purposes of the statute of limitations was not when MDU learned of the presence of asbestos in its building, but when MDU could have learned, with the exercise of reasonable diligence, that its building had been contaminated by asbestos. Id. at 1279.

Even if we were to apply the MDU standard to the present case, the outcome remains unchanged. As Appletree recognizes in its reply brief, the MDU "contamination" standard is consistent with the "hazard requiring abatement" standard that the district court applied. We conclude that the undisputed facts from which the district court concluded that, prior to July 3, 1988, Appletree discovered, or through the exercise of reasonable diligence should have discovered, that the asbestos in the building was a hazard in need of abatement also lead to the conclusion that Appletree, prior to July 3 1988, could have learned, with the exercise of reasonable diligence, that its building had been contaminated by asbestos.

Further, Minnesota's revival statute for asbestos cases does not aid Appletree. The statute revives or extends an asbestos abatement recovery action "that would otherwise be barred before July 1, 1990, as a result of expiration of the applicable period of limitation." Minn.Stat.Ann. Sec. 541.22(2) (West Supp.1994). It adds that "[a]n asbestos action revived or extended under this subdivision may be begun before July 1, 1990." Id. Appletree filed its complaint in federal district court on June 29, 1990, but Grace was not served until July 3, 1990. Under Minnesota law, an action is commenced or begun when the defendants have been served. Minn.R.Civ.P. 3.01; Metropolitan Federal Bank, 999 F.2d at 1261-62; Concordia College Corp., 999 F.2d at 330-331. Because Appletree's action was not begun before July 1, 1990, the revival statute does not apply.

Appletree argues that we should apply Federal Rule of Civil Procedure 3, which states that a "civil action is commenced by filing a complaint with the court," and hold that, by filing its complaint on June 29, 1990, Appletree came within the revival statute. In Walker v. Armco Steel Corp., 446 U.S. 740, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980), the Supreme Court held that "Rule 3 governs the date from which various timing requirements of the Federal Rules begin to run, but does not affect state statutes of limitations." Id. at 751, 100 S.Ct. at 1985. The Court stated:

There is simply no reason why, in the absence of a controlling federal rule, an action based on state law which concededly would be barred in the state courts by the state statute of limitations should proceed through litigation to judgment in federal court solely because of the fortuity that there is diversity of citizenship...