Financial Associates, Ltd. v. G.E. Johnson Const. Co., Inc.

• Decision Date: 23 June 1986
• Docket Number: No. 84SC343,84SC343
• Citation: 723 P.2d 135
• Parties: FINANCIAL ASSOCIATES, LTD., a Colorado joint venture, Petitioner, v. G.E. JOHNSON CONSTRUCTION COMPANY, INC., Individually; Michael H. Collins, Individually; Leland B. Roberts, Individually; Collins & Roberts, Architects, Inc., Individually; George D. Morris, Individually; Lincoln-Devore Testing Laboratory, Inc., Individually; Howard C. Dutzi, Individually; and Howard C. Dutzi & Associates, Inc., Respondents.
• Court: Colorado Supreme Court

Page 135

723 P.2d 135

FINANCIAL ASSOCIATES, LTD., a Colorado joint venture, Petitioner, v. G.E. JOHNSON CONSTRUCTION COMPANY, INC., Individually Michael H. Collins, Individually; Leland B. Roberts Individually; Collins & Roberts, Architects, Inc. Individually; George D. Morris, Individually Lincoln-Devore Testing Laboratory, Inc., Individually; Howard C. Dutzi, Individually; and Howard C. Dutzi & Associates, Inc., Respondents.

No. 84SC343.

Supreme Court of Colorado, En Banc.

June 23, 1986.

Rehearing Denied Aug. 25, 1986.

Richard L. Harring, Edward J. Blieszner, Randall M. Livingston, Calkins, Kramer, Grimshaw & Harring, Denver, for petitioner Financial Associates, Ltd.

Kenneth Sparks, Barton L. Enoch, William J. Leone, Sparks, Dix, Enoch, Suthers & Winslow, Colorado Springs, for respondent G.E. Johnson Const. Co., Inc.

William H. Knapp, Knapp, Lee and York, Denver, for respondents Michael H. Collins, Leland B. Roberts and Collins & Roberts, Architects, Inc.

Edwin Strand, Strand and Meadows, Colorado Springs, for respondents George D. Morris and Lincoln-DeVore Testing Laboratory, Inc.

L. Tyrone Holt, Elsa D. Burchinow, Holt & Gebow, Denver, for respondents Howard C. Dutzi and Howard C. Dutzi & Associates, Inc.

DUBOFSKY, Justice.

We granted certiorari to review the decision of the court of appeals in Financial Associates, Ltd. v. G.E. Johnson Construction Company, Inc., 694 P.2d 345 (Colo.App.1984). The court of appeals affirmed the entry of summary judgment against the plaintiff Financial Associates, Ltd., on the ground that the action was barred by the applicable statute of limitations, section 13-80-127, 6 C.R.S. (1973 & 1985 Supp.). Because the determination of when the statutory limitations period began to run against the plaintiff involves an issue of material fact, summary judgment was improper, and we reverse the decision of the court of appeals.

In March, 1973, the plaintiff contracted with one of the co-defendants, G.E. Johnson Construction Company, Inc. (Johnson), for the design and construction of a four story bank and office building in Colorado Springs. Johnson engaged co-defendants George D. Morris and Lincoln-DeVore Testing Laboratory, Inc. (Lincoln-DeVore) for soil engineering services. Johnson contracted for architectural services with another co-defendant, Collins & Roberts Architects, Inc. Collins & Roberts in turn contracted with co-defendant Howard C. Dutzi & Associates, Inc. (Dutzi) for structural engineering services. Construction of the building was substantially completed by July 1, 1974.

In 1978, the plaintiff noticed cracks in walls in the building's basement and a perceptible sloping or heaving of the basement floor. At the plaintiff's request, Lincoln-DeVore investigated the problem and submitted a report on January 11, 1979. The report attributed a "large amount of slab movement" to the expansion of porous soils beneath the building. The report stated that the cause of the soil expansion "quite possibly" was a broken water main in the area. Other possible causes of the soil expansion were a sprinkler system and several drywells near the building.

The Lincoln-DeVore report attributed cracking and distortion in the nonloadbearing basement partition walls to the fact that the plaintiff had constructed the partitions in a rigid manner rather than allowing them "to float with the floor slab as originally intended." Lincoln-DeVore specifically stated that "[t]he damage encountered within the basement area cannot be considered of a structural nature." It concluded that "the problems encountered during this inspection are probably not serious enough to cause a great deal of concern" and suggested that the plaintiff implement recommendations included in the report to forestall future problems.

In March and April of 1979, Howard Dutzi inspected the building at the plaintiff's request to determine why the first floor door to the two-story vault would not close. In a report dated April 11, 1979, Dutzi mentioned but dismissed building movement as the cause of the problem. He concluded that he was "completely at a loss" as to the cause of the problem although he suspected that the problem might be related to the expansive soil underneath the building.

Because the plaintiff's problems continued, it hired Chen and Associates, Inc., consulting engineers, to conduct another investigation. Chen's report, dated November 27, 1979, noted heaving of the basement slab and cracking in the slab and the walls, a result of soil expansion caused by increased moisture content. The report also mentioned that "some slight foundation movements may be attributed to approximately 20% of the observed distress."

On November 18, 1980, Lincoln-DeVore submitted a second report noting that the problems in the building were more widespread than originally thought. The report stated that in "portions of the foundation area, the footings rest directly upon expansive clays while in the remainder of the area the foundations rest on non-expansive sands." The report linked both settlement and heaving to a dramatic increase in the amount of subsurface water in the Colorado Springs area. The report stated that "[c]onstruction precautions regarding the settlement of foundations on the sand are difficult to take, but design procedures have been developed in an attempt to limit the amount of heave which a foundation would undergo." The design feature mentioned was the provision of a dead load pressure higher than the expansion potential of the clay. The report attributed some of the problems to the plaintiff's construction of the partition walls in a manner that transferred the load away from the column foundations, thereby "decreasing pressure at the footing line." The report concluded that "a large percentage of the anticipated settlement has already occurred" and that "future movement should be ... of a much smaller magnitude than the building has already experienced."

Thomas E. Summerlee and Associates, Inc., a soil and foundation engineering firm hired by the plaintiff to examine the problems in the building, detailed its investigation in a report dated August 20, 1982. The report first noted that the building had experienced about three inches of differential settling, that further settling of up to five and one-half inches might occur, and that such settling could seriously affect the building's structural integrity. The report attributed the settling to soils that became more compressible with increased depth. Identifying the cause of the problem, the report stated:

The existing spread footing foundations have exerted stresses on the underlying soil strata which are causing consolidation of those soils.... In our opinion, the bearing soils located beneath foundation elevations are not capable of carrying the structural loads imposed by the spread footing foundations without creating future excessive settlements.

The report also noted that "[t]he present settlement of the building foundations has caused distress to the building," while distress to the partition walls in the basement was "probably due primarily to a combination of foundation settlement and heaving of the basement slab." The report concluded that to solve the settlement problem it would be necessary to transfer the structural loads down to bedrock, 86 feet below the site grade, and recommended construction of piles or columns beneath the building.

In March, 1983, the plaintiff sued defendants, alleging negligent soil testing and negligent design and construction of the building. The defendants moved for summary judgment on the basis that the action was barred by section 13-80-127, 6 C.R.S. (1973 & 1985 Supp.), which requires actions concerning improvements to real property to be brought within two years of the time when "the damaged party discovers or in the exercise of reasonable diligence should have discovered the defect in improvement which ultimately causes the injury, when such defect is of a substantial or significant nature." The district court granted the defendants' motion for summary judgment, finding that the two-year period began to run when the second Lincoln-DeVore report was submitted to the plaintiff in November, 1980.

The plaintiff appealed to the court of appeals, contending that it did not have knowledge nor could it be charged with knowledge that would trigger the running of the limitations period until receipt of the Summerlee report in 1982. The plaintiff asserted that the question of when it knew or reasonably should have known of a defect in the improvement was a genuine issue of material fact that precluded entry of summary judgment. The court of appeals affirmed the district court's summary judgment.

I.

Section 13-80-127, 6 C.R.S. (1973 & 1985 Supp.), provides in part that "[a]ll actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within two years after the claim for relief arises." Subsection (1)(b) explains that "[a] claim for relief arises under this section at the time the damaged party discovers or in the exercise of reasonable diligence should have discovered the defect in the improvement which ultimately causes the injury, when such defect is of a substantial or significant nature."

In Criswell v. M.J. Brock and Sons, Inc., 681 P.2d 495, 498-99 (Colo.1984), we recognized that section 13-80-127 "distinguishe[s] discovery of the defect which 'causes the injury' from the injury itself," and that "in construction projects discovery of the physical manifestations of a defect is not necessarily concurrent in time with discovery of the defect." The two year period established by section 13-80-127 commences only when the plaintiff discovers or should have discovered that the defect causes the...