Harbor Court Associates v. Leo A. Daly Co.

• Decision Date: 03 June 1999
• Docket Number: No. 98-2158,98-2158
• Citation: 179 F.3d 147
• Parties: , HARBOR COURT ASSOCIATES; Murdock Development Company, Plaintiffs-Appellants, and Council of Unit Owners of the Towers at Harbor Court Condominium, Plaintiff, v. LEO A. DALY COMPANY, Third-Party Defendant-Appellee, and Kiewit Construction Company; Peter Kiewit Sons' and Company; The Sherman R. Smoot Company, Incorporated; The Sherman R. Smoot Corporation of Washington, DC; Owen Steel Company, Incorporated, Defendants, and Republic Insurance Company; Travelers Casualty And Surety Company; Fireman's Insurance Company of Newark, New Jersey; Custom Steel Fabricators, Incorporated; Fidelity and Deposit Company of Maryland; National Fire Insurance Company of Hartford; American Motorist Insurance Company; Mission National Insurance Company; Landmark Insurance Company; Wausau Insurance Companies; National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Republic Insurance Company; Employers Insurance of Wausau, a Mutual Company; Aetna Casualty and Surety Company; Pacific Plaza Insurance Services, Inc., Third-Party Defendants. American Institute of Architects; National Society of Professional Engineers; American Society of Civil Engineers, Amici Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

179 F.3d 147 HARBOR COURT ASSOCIATES; Murdock Development Company Plaintiffs-Appellants and Council of Unit Owners of the Towers at Harbor Court Condominium, Plaintiff, v. LEO A. DALY COMPANY, Third-Party Defendant-Appellee and Kiewit Construction Company; Peter Kiewit Sons' and Company; The Sherman R. Smoot Company, Incorporated; The Sherman R. Smoot Corporation of Washington, DC; Owen Steel Company, Incorporated, Defendants, and Republic Insurance Company; Travelers Casualty And Surety Company; Fireman's Insurance Company of Newark, New Jersey; Custom Steel Fabricators, Incorporated; Fidelity and Deposit Company of Maryland; National Fire Insurance Company of Hartford; American Motorist Insurance Company; Mission National Insurance Company; Landmark Insurance Company; Wausau Insurance Companies; National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Republic Insurance Company; Employers Insurance of Wausau, a Mutual Company; Aetna Casualty and Surety Company; Pacific Plaza Insurance Services, Inc., Third-Party Defendants. American Institute of Architects; National Society of Professional Engineers; American Society of Civil Engineers, Amici Curiae.

No. 98-2158.

United States Court of Appeals, Fourth Circuit.

Argued April 8, 1999.

Decided June 3, 1999.

ARGUED: John Henry Lewin, Jr., Venable, Baetjer & Howard, L.L.P., Baltimore, Maryland, for Appellants. James F. Lee, Jr., Carr, Goodson, Lee & Warner, P.C., Washington, D.C., for Appellee. ON BRIEF: Paul D. Barker, Jr., Mark D. Maneche, Venable, Baetjer & Howard, L.L.P., Baltimore, Maryland, for Appellants. William J. Carter, Carr, Goodson, Lee & Warner, P.C., Washington, D.C., for Appellee. Nory Miller, Elena N. Broder, Jenner & Block, Washington, D.C., for Amici Curiae.

Before ERVIN, HAMILTON, and LUTTIG, Circuit Judges.

Affirmed by published opinion. Judge LUTTIG wrote the opinion, in which Judge ERVIN and Judge HAMILTON joined.

OPINION

LUTTIG, Circuit Judge:

Plaintiffs-appellants Harbor Court Associates and Murdock Development Company appeal a district court award of summary judgment to defendant-appellee Leo Daly, an architect, on their diversity breach of contract and tort actions arising out of Daly's allegedly defective design of a commercial construction project. Finding no error, we affirm.

I.

Harbor Court Associates and Murdock Development Company ("HCA/Murdock") are the developers of Harbor Court Complex, located in the Inner Harbor area of Baltimore, Maryland. On April 28, 1983, Murdock Development Company entered into a contract with Daly, whose principal place of business is in Nebraska. Under the contract, Daly would act as architect for the design and construction of Harbor Court Complex, which included a condominium tower, office building, hotel, health club, and parking garage.

The contract between Murdock Development Company and Daly is a standard agreement prepared by the American Institute of Architects, with some modifications. Relevant to this appeal are the following two provisions of that form agreement. Section 11.1 provides that

[t]his Agreement shall be governed by the law of the principal place of business of the Architect.

J.A. at 198. Section 11.3 states as follows:

As between the parties to this Agreement: as to all acts or failures to act by either party to this Agreement, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the relevant Date of Substantial Completion of the Work, and as to any acts or failures to act occurring after the relevant Date of Substantial Completion, not later than the date of issuance of the Final Certificate of Payment.

Construction on the project began in mid-1984, and a Final Certificate of Completion was issued on September 11, 1987. Thereafter, the Complex operated for nearly eight years without any indication of design or construction problems, although its outer brick veneer did experience some minor chipping and cracking. In April, 1996, however, a fifteen-square-foot area of brick suddenly, and without warning, exploded off the face of the Complex. Structural engineers were called to investigate, and they informed HCA/Murdock that the brick veneer of the Complex suffered from fundamental and latent defects in design and construction.

On September 20, 1996 HCA/Murdock brought suit in the Circuit Court for Baltimore City against Kiewit Construction Company, the general contractor responsible for construction of the Complex, for breach of contract and negligence, and for a declaratory judgment that the defendant would be liable for damages or injuries caused to third parties as a result of the alleged defects in design and construction. Kiewit filed third-party claims against its subcontractors, and then removed the case to the United States District Court for the District of Maryland on diversity grounds. HCA/Murdock and the Council of Unit Owners of the Towers of Harbor Court Condominiums then filed a Consolidated Amended Complaint against Kiewit and the third-party defendants, each of which in turn filed third-party complaints against Daly for his role as architect. Finally, to round out the litigation, HCA/Murdock then filed a complaint against Daly for negligence and breach of contract, which the developers later amended to include a count for indemnification.

After limited discovery on statute of limitations issues, Daly moved for summary judgment against HCA/Murdock, arguing that section 11.3 of their written agreement established September 11, 1987, the date of Substantial Completion, as the date on which Maryland's three-year statute of limitations began to run, and that as a result the actions were long since time-barred. The district court agreed. The district court, in exercise of its diversity jurisdiction, held that a Maryland court would apply its own law to the contractual provision fixing the accrual date of any action, and would enforce the limitation provision. Although the Maryland courts apply the "discovery rule," which holds that a "cause of action accrues when the [plaintiff] in fact knew or reasonably should have known of the wrong," Pennwalt Corp. v. Nasios, 314 Md. 433, 442, 550 A.2d 1155 (1988), the district court rejected HCA/Murdock's argument that the Maryland Court of Appeals would decline to enforce as against public policy a contractual provision circumventing that rule by establishing a fixed date of accrual. The district court also held that even if, as HCA/Murdock argued, under the contract's choice-of-law provision interpretation of the accrual date clause was properly governed by Nebraska law, the clause was enforceable under the law of that state as well. The district court therefore granted Daly's motion for summary judgment, holding that because the cause of action accrued in September, 1987, HCA/Murdock's claims brought in 1996 were barred by Maryland's three-year statute of limitations.

In addition, the district court granted summary judgment to the defendant on HCA/Murdock's indemnification claim for any injuries arising after September 11, 1997, the date on which the Maryland Statute of Repose expired, and dismissed the claim without prejudice with regard to any as yet unidentified injuries or damages occurring before that date. The district court entered an order of final judgment on these claims pursuant to Fed.R.Civ.P. 54(b), and HCA/Murdock appeals.

II.

Appellants argue that the district court, sitting in diversity, erred in granting summary judgment to appellee because a Maryland state court would have applied Nebraska, rather than Maryland, law to the accrual clause at issue, and under Nebraska law such a provision is unenforceable as against public policy. Appellants argue in the alternative that even if the district court did not err in choosing to apply Maryland substantive law to the disputed clause, it nonetheless erred in holding that the provision was enforceable under the law of that state. Because we believe that the contractual provision is enforceable under either Maryland or Nebraska law, thereby rendering resolution of the threshold choice-of-law question unnecessary to this appeal, we affirm.

A.

We consider first appellants' contention that the contractual provision is unenforceable under Maryland law.

Appellants argue that because the Maryland courts have applied the "discovery rule" to all civil causes of action, see Poffenberger v. Risser, 290 Md. 631, 636, 431 A.2d 677 (1981), that rule has attained the status of a public policy around which parties may not contract. Historically, the general rule in Maryland, as in most jurisdictions, was that an action accrued on the date of the wrong. Pennwalt, 314 Md. at 438, 550 A.2d 1155. Under this "date of the wrong" rule, however, the operation of a statute of limitations would sometimes result in a potential plaintiff's forfeit of a cause of action that he neither knew nor should have known existed. The Maryland Court of Appeals has sought, through the development and widespread application of the discovery rule, to relieve the "blamelessly ignorant," Harig v. Johns-Manville Prods. Corp., 284 Md. 70, 83, 394 A.2d 299 (1978), of the "often harsh and unjust results which flow from [such] a rigid application of the statute of limitations." Pennwalt, 314 Md. at 452, 550 A.2d 1155.

We agree with appellants that the Maryland Court of Appeals, in so doing, may be said to have made a clear policy choice to establish the discovery rule as the default rule governing the date upon which its statutes of limitation begin to run. Appellants are also correct that section 11.3 of the parties' contract, if enforced, would circumvent that default rule. Because neither the courts nor the legislature of the state have explicitly prohibited parties to an agreement from departing from this default rule, however, the question remains whether the Maryland...