City of Willmar v. Short-Elliott-Hendrickson, Inc.

• Decision Date: 04 October 1991
• Docket Number: No. C7-90-1373,SHORT-ELLIOTT-HENDRICKSO,INC,C7-90-1373
• Parties: 15 UCC Rep.Serv.2d 912, Prod.Liab.Rep. (CCH) P 12,962 CITY OF WILLMAR, Petitioner, Respondent, v., Petitioner, Appellant, Adolfson & Peterson, Inc., Respondent, Clow Corporation, Respondent.
• Court: Minnesota Supreme Court

Page 73

475 N.W.2d 73

15 UCC Rep.Serv.2d 912, Prod.Liab.Rep. (CCH) P 12,962

CITY OF WILLMAR, Petitioner, Respondent, v. SHORT-ELLIOTT-HENDRICKSON, INC., Petitioner, Appellant, Adolfson & Peterson, Inc., Respondent, Clow Corporation, Respondent.

No. C7-90-1373.

Supreme Court of Minnesota.

Oct. 4, 1991.

Syllabus by the Court

1. Minn.Stat. § 541.051 as amended in 1988 cannot be retroactively applied to a cause of action instituted before the amendment was adopted.

2. Under Minn.Stat. § 541.051 (1986) as interpreted in Wittmer v. Ruegemer, a cause of action related to a defective improvement to real property accrues when the defective condition is discovered.

3. For purposes of warranty claims, "goods" as defined by Minn.Stat. § 336.102-101 (1990) remain "goods" even though incorporated into an improvement to real property and thus fall within the four-year statute of limitations provided by Minn.Stat. § 336.2-725 (1990).

Mark J. Heley, Thomas L. Adams, Meagher & Geer, Minneapolis, for appellant.

Scott A. Smith, Joy M. Waldera, Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, for City of Willmar.

Steven R. Schwegman, Quinlivan, Sherwood, Spellacy & Tarvestad, P.A., St. Cloud, for Adolfson & Peterson, Inc.

Kevin Quigley, Oppenheimer, Wolff & Donnelly, St. Paul, for Clow Corp.

Heard, considered and decided by the court en banc.

TOMLJANOVICH, Justice.

In the mid-1970's, the City of Willmar employed Short-Elliot-Hendrickson, Inc. (SEH) to recommend and design improvements to the City's waste water treatment facility. SEH recommended the City replace its trickling filter system with a series of rotating biological contactors (RBC's)--large cylinders that rotate bacteria into and out of waste water. The City accepted SEH's recommendation and construction began in 1981. Clow Corporation was selected by the general contractor ¹ and approved by SEH to manufacture the RBC's.

Construction on the improvements was substantially completed by September 1982. Shortly after the City began operating the facility, however, it received complaints about offensive odors from nearby residents. Further, the RBC units failed to achieve performance standards guaranteed by Clow when initially tested in November 1982.

SEH and Clow were involved in subsequent efforts to solve the odor problem and to achieve acceptable levels of waste water treatment, including the installation of additional equipment recommended and provided by Clow in May 1983. Although the RBC units again failed when tested in the spring of 1983, they performed at acceptable levels when tested the following July.

On November 3, 1983, the Willmar City Engineer submitted a status report on the treatment facility indicating the odor problem seemed to stem from the presence of too little dissolved oxygen in the RBC units. Subsequently, SEH retained Lawrence Breimhurst, a professional engineer, to evaluate the cause of the odors at the treatment facility. Breimhurst concluded the periodic odors resulted from overloaded RBC units, and that adjustments in the existing equipment could control the problem.

Although the odor emanating from the treatment facility abated somewhat during the spring of 1984, it worsened the following summer. In August, SEH again informed the City that the odor was produced by insufficient dissolved oxygen in the RBC units, owing in large part to the content and volume of waste being released by a local poultry processing plant. SEH recommended that the City enforce its existing ordinance requiring industrial sewage releases be monitored, permit SEH to conduct a week-long training session for treatment staff personnel, and add an air diffusion system to its RBC units in order to provide those units more dissolved oxygen.

On November 26, 1984, the City authorized SEH to design an aeration system and other additional equipment for the RBC units and to prepare a grant application to the State Pollution Control Agency for partial funding of these additions. The City informed SEH that it intended to go forward with installing the proposed aeration system irrespective of whether the grant application was accepted because of its concern about controlling the odor problem.

Although the State Pollution Control Agency denied the City's grant application, the City installed the aeration system at its own expense.

SEH continued as consulting engineers to the City through the winter and spring of 1986. During the summer, however, the City concluded the aeration system had not solved the treatment facility's odor problem. In August, the City retained Bonestroo, Rosene, Anderlik & Associates, Inc. (BRA), to conduct an engineering evaluation of the treatment facility. BRA delivered its evaluation to the City on February 13, 1987. The report specifically addressed the facility's odor problem, indicating that overloaded RBC units constituted one of four sources generally responsible for producing odor in a waste water treatment facility. It also suggested several alternative improvement strategies, each involving some change in the existing RBC system.

The City subsequently contracted for additional improvements, including installation of waste screens at the poultry plant and at the facility, installation of a new trickling filter, and construction of new odor control tanks. BRA estimated the cost of these improvements to be $2,600,000.00. The City indicates construction on the facility was completed in 1989 at a cost of more than $3 million.

In October 1987, the City served a complaint on SEH alleging the company was negligent in designing improvements to the City's waste water treatment facility. The following month, the City also served a complaint on Clow Corporation alleging Clow was negligent in manufacturing the RBC units installed at the treatment facility and that Clow breached express and implied warranties in connection with the sale of those units.

In answer to the City's allegations, both SEH and Clow argued that the City did not undertake its suit within the two-year period permitted by Minn.Stat. § 541.051 (1987). After discovery was conducted, both SEH and Clow moved the District Court for the Eighth Judicial District, the Honorable John C. Lindstrom presiding, for summary judgment. The district court granted summary judgment for both defendants, concluding that the City's actions against each were time barred.

The City appealed the district court's decision to the court of appeals. With respect to the City's claim against Clow, the court concluded that section 541.051 barred the City's claim from going forward. As to the claim against SEH, however, the court held that the City raised material issues of fact regarding its reasonable reliance on statements made by SEH, requiring remand for trial on the issue of equitable estoppel.

I

Minn.Stat. § 541.051, Subd. 1 (1986), the provision in effect at the time the City served its summons and complaint on SEH, provided that:

Except where fraud is involved, no action * * * to recover damages for any injury to property, real or personal * * * arising out of the defective and unsafe condition of an improvement to real property * * * shall be brought against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property or against the owner of the real property more than two years after discovery thereof * * *.

Id. (emphasis added). In Wittmer v. Ruegemer, 419 N.W.2d 493 (Minn.1988), this court concluded that section 541.051 established discovery of the defective condition, not discovery of the damage or injury it caused, as the point at which a cause of action accrued and the limitation period began. See id. at 496.

Subsequent to the date on which the City began its action against SEH, the legislature amended section 541.051 to read:

no action * * * arising out of the defective and unsafe condition of an improvement to real property * * * shall be brought * * * more than two years after discovery of the injury * * *.

Act of April 24, 1988, ch. 607, § 1, Subd. 1(a), 1988 Minn.Laws 680, codified at Minn.Stat. § 541.051, Subd. 1(a) (1988) (emphasis added). In addition, a new provision was attached, stating that "[f]or purposes of paragraph (a), a cause of action accrues upon discovery of the injury * * *." Act of April 24, 1988, ch. 607, § 1, Subd. 1(b), 1988 Minn.Laws 681, codified at Minn.Stat. § 541.051, Subd. 1(b) (1988).

The amendment was entitled "[a]n act relating to civil actions; clarifying the statute of limitations for damages based on services or construction to improve real property * * *," and stated that it applied "to matters pending on or instituted on or after the effective date." Act of April 24, 1988, ch. 607, § 3, 1988 Minn.Laws 681 (emphasis added).

The City contends that its action against SEH is governed by the 1987, "discovery of defect" version of section 541.051, despite the legislature's express direction that the 1988, "discovery of injury" amendment is to apply retroactively and merely "clarified" the existing provision. We agree.

In October, 1987, when the City initiated its action against SEH, this court's interpretation of section 541.051 articulated in Wittmer remained in effect. Despite language indicating that the 1988 amendment was merely a "clarification," it effectively overruled Wittmer by establishing the discovery of an injury, rather than a defective condition, as the point at which the limitation period begins to run.

Although this court has held that a statute of limitations may be altered without violating the guarantee of due process, see Donaldson v. Chase Securities Corp., 216 Minn. 269, 275, 13 N.W.2d 1, 4 (1943), aff'd, 325 U.S. 304, 65 S.Ct. 1137, 89 L.Ed. 1628 (1945), it has also concluded that where a statutory period is shortened, a "reasonable time" must be accorded within which those with accrued causes of action...