Commonwealth Land Title Ins. Co. v. Kci Techs., Inc.

• Citation: 922 F.3d 459
• Decision Date: 26 April 2019
• Docket Number: No. 18-7051,18-7051
• Parties: COMMONWEALTH LAND TITLE INSURANCE COMPANY, Appellant v. KCI TECHNOLOGIES, INC. and Wiles Mensch Corporation, Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

922 F.3d 459

COMMONWEALTH LAND TITLE INSURANCE COMPANY, Appellant

v.KCI TECHNOLOGIES, INC. and Wiles Mensch Corporation, Appellees

No. 18-7051

United States Court of Appeals, District of Columbia Circuit.

Argued November 1, 2018

Decided April 26, 2019

Joseph T. Nah argued the cause for appellant. With him on the briefs was Marianne R. Casserly.

Howard S. Stevens argued the cause for appellee KCI Technologies, Inc. With him on the brief was Meighan G. Burton.

Jonathan C. Shoemaker argued the cause for appellee Wiles Mensch Corporation. With him on the brief was Dalene A. Radcliffe.

Before: Garland, Chief Judge, and Tatel and Wilkins, Circuit Judges.

Opinion for the Court filed by Circuit Judge Wilkins.

On March 23, 2017, Appellant Commonwealth Land Title Insurance Company filed a seven-count complaint against two land surveyors: Appellees KCI Technologies, Inc. ("KCI") and Wiles Mensch Corporation ("WMC"). Appellant’s complaint brings breach of contract and negligence claims against KCI and WMC in connection with four allegedly defective surveys that the two entities delivered to ICG 16th Street Associates ("ICG"). ICG, a non-party to this litigation, is a development group to whom Appellant issued, and made a loss payment under, a title insurance policy. The gravamen of the complaint is that KCI’s and WMC’s surveys failed to notice the full size of a twelve-inch encroachment – which ICG discovered on March 24, 2014 – spanning from an abutting building onto ICG’s property.

KCI and WMC each moved to dismiss pursuant to the District of Columbia’s three-year statute of limitations, and the District Court dismissed the complaint, with prejudice, as untimely. The District Court held that Appellant’s claims accrued when KCI and WMC delivered the defective surveys to ICG in 2006, 2012, 2013, and 2014. In so holding, the District Court declined to apply D.C.’s so-called "discovery rule," which, in certain cases, tolls the statute of limitations until a plaintiff knew, or in the exercise of reasonable diligence should have known, of the injury, see Ehrenhaft v. Malcolm Price, Inc. , 483 A.2d 1192, 1203 (D.C. 1984). The District Court found that ICG and Appellant are sophisticated business entities, and that the 2012 and 2013 surveys put them on notice of the encroachment’s existence (just not its precise length).

Appellant argues that this Court should reverse as to the first three counts of the complaint because the District Court erred in dismissing them on statute of limitations grounds without applying the discovery rule. We agree. The complaint, filed on March 23, 2017, alleges that ICG did not learn that the encroachment was twelve inches – a fact that obstructed its development plan – until March 24, 2014, only after its contractor removed a portion of the property’s brick façade. Appellant and ICG, an insurance company and development group respectively, are unsophisticated parties with respect to land surveying, and the complaint alleges that they commissioned four surveys from KCI and WMC for the purpose, inter alia , of accurately identifying encroachments. At the motion to dismiss stage, therefore, it cannot conclusively be said that Appellant and ICG failed to exercise reasonable diligence in attempting to discover the encroachment’s full size. In turn, it is premature to reject the possibility that Appellant’s claims in counts one, two, and three did not accrue, at the earliest, until ICG discovered that the encroachment was twelve inches on March 24, 2014. See Bregman v. Perles , 747 F.3d 873, 875-76 (D.C. Cir. 2014) ("[B]ecause statute of limitations issues often depend on contested questions of fact, dismissal is appropriate only if the complaint on its face is conclusively time-barred.") (quoting de Csepel v. Republic of Hungary , 714 F.3d 591, 603 (D.C. Cir. 2013) )).

I.

The following facts are taken from Appellant’s complaint and assumed true for the purpose of reviewing KCI’s and WMC’s motions to dismiss. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

In 2006, in connection with ICG’s plan to purchase and commercially develop a lot ("Property") in D.C., KCI conducted a land title survey ("KCI 2006 Survey"), which included a certification of accuracy made out to ICG, Appellant (ICG’s title insurer), and other parties. J.A. 19-20, 49. The KCI 2006 Survey failed, entirely, to notice any encroachment upon the Property.

On or about April 12, 2007, in reliance on the KCI 2006 Survey, ICG acquired the Property. At the time of purchase, there were two buildings on the lot; ICG planned to demolish them and construct an office building in their stead. Also on April 12, 2007, and also in reliance on the KCI 2006 Survey, Appellant issued ICG a title insurance policy ("2007 Title Policy").

On December 2, 2012, in connection with its planned development, ICG retained WMC to conduct a boundary, topographic, and utility survey ("WMC 2012 Survey"). It indicated that a party wall – i.e. a wall common to two adjoining buildings – existed between the Property and an adjacent building and encroached onto the Property by two to three inches. In 2013, ICG commissioned WMC to conduct a second survey ("WMC 2013 Survey"), which indicated that, in fact, the party wall encroached onto the Property by four inches.¹

In early 2014, ICG initiated demolition of the existing buildings on the Property. On March 24, 2014, however, the demolition process hit a snag. That day, Oscar Perez, a director of the architectural firm ICG hired, emailed ICG to inform it that the party wall actually encroached onto the Property by twelve inches. Mr. Perez’s email (which Appellant included as an exhibit to its complaint, see J.A. 22) indicates that Mr. Perez’s discovery was possible only because the relevant portion of the building’s brick façade had been removed, id. at 131. Upon discovering that the encroachment was twelve inches – as opposed to four inches or less – ICG determined that it could construct the office building as planned only by demolishing the party wall. In addition, ICG was obligated to pay its main tenant $ 577,000 per month in delay penalties if the tenant was unable to move in by December 2015. Accordingly, shortly after learning that the encroachment was twelve inches, ICG razed the party wall.

On November 17, 2014, ICG submitted a claim to Appellant under the 2007 Title Policy for the cost of the party wall demolition. Appellant accepted coverage and made a loss payment of approximately $ 1 million to ICG. According to Appellant, as of July 2015, ICG incurred total costs of more than $ 2.5 million for demolition of the party wall and associated delay penalties. Appellant brings breach of contract and negligence claims against KCI and WMC for the allegedly defective surveys.

II.

This Court reviews de novo the dismissal of a complaint. Bregman , 747 F.3d at 875. "[C]ourts should hesitate to dismiss a complaint on statute of limitations grounds based solely on the face of the complaint" because "statute of limitations issues often depend on contested questions of fact." Firestone v. Firestone , 76 F.3d 1205, 1208-09 (D.C. Cir. 1996) (internal citations omitted). Indeed, dismissal is appropriate on statute of limitations grounds "only if the complaint on its face is conclusively time-barred." Bregman , 747 F.3d at 875-76 (quoting de Csepel , 714 F.3d at 603 ).

In D.C., to maintain a cause of action for breach of contract or negligence, a litigant must bring suit within three years from when a claim "accrues." D.C. CODE § 12-301. The statute, however, does not define "accrues," and the term is therefore "left to judicial interpretation." Ehrenhaft , 483 A.2d at 1198. In negligence, a cause of action accrues when the "injury result[s]." Hanna v. Fletcher , 231 F.2d 469, 472 (D.C. Cir. 1956). In contract, the statute of limitations begins to run when the contract is first breached, or when the "defective work is done." Lieberman v. Aldon Constr. Co. , 125 A.2d 517, 518 (D.C. 1956).

The D.C. Court of Appeals, however, does not enforce the statute in a draconian fashion. Indeed, a well-established exception is central to this dispute – i.e. the discovery rule, under which "accrual occurs ... when a party knows or by the exercise of reasonable diligence should know: (1) of the injury; (2) the injury’s cause in fact; and (3) of some evidence of wrongdoing." Capitol Place I Assocs. L.P. v. George Hyman Constr. Co. , 673 A.2d 194, 199 (D.C. 1996), superseded in part on other grounds by D.C. CODE § 16-4406(c). The discovery rule is an equitable doctrine; its purpose is to preserve claims in circumstances where the fact of injury or breach " ‘may not be readily discernible’ at the time when actually incurred." Ehrenhaft , 483 A.2d at 1202 (quoting Wilson v. Johns-Manville Sales Corp. , 684 F.2d 111, 116 (D.C. Cir. 1982) ).²

The D.C. Court of Appeals twice has examined the discovery rule in the context of deficient design and construction: first, in Ehrenhaft , and then in Capitol Place .

In Ehrenhaft , plaintiff-homeowner hired defendant-contractor to build a new room, which defendant completed in 1977. 483 A.2d at 1194-95. Over the next four years, various issues with the room’s plumbing and insulation arose, and defendant made repairs. Id. at 1195. During the winter of 1981 to 1982, however, the room’s pipes burst, and a separate contractor informed plaintiff that, due to faulty construction, the room’s windows functioned improperly, and its heated bench was a burn hazard. Id. In 1982, plaintiff sued defendant for breach of contract and negligence. On summary judgment, the trial court held that plaintiff’s claims were time-barred because defendant performed the defective work in 1977. Id. at 1199. The D.C. Court of Appeals, however, reversed; applying the discovery rule, it held that there was a question of material fact as to whether plaintiff knew or should have known of the defects for which he sought...