Hilliard & Bartko Joint Venture v. Fedco Systems, Inc.

• Decision Date: 01 September 1986
• Docket Number: No. 72,72
• Citation: 309 Md. 147,522 A.2d 961
• Parties: HILLIARD & BARTKO JOINT VENTURE v. FEDCO SYSTEMS, INC. and Gardiner & Gardiner, Inc. ,
• Court: Maryland Court of Appeals

Page 147

309 Md. 147

522 A.2d 961

HILLIARD & BARTKO JOINT VENTURE v. FEDCO SYSTEMS, INC. and Gardiner & Gardiner, Inc.

No. 72, Sept. Term, 1986.

Court of Appeals of Maryland.

March 27, 1987.

Stephan J. Boardman (James H. Hulme, Nancy S. Heermans and Arent, Fox, Kintner, Plotkin & Kahn, on brief) Washington, D.C. and Patricia C. Hilliard, Gen. Counsel, on brief), Forestville, for appellant.

Gail A. Nettleton, Washington, D.C. (Sadur & Pelland, Washington, D.C., on brief) for appellee, Gardiner & Gardiner, Inc.

Steven M. Levine, Washington, D.C. (Paul T. Cuzmanes and Wilson, Elser, Moskowitz, Edelman & Dicker, Washington, D.C., on brief), for appellee, Fedco Systems, Inc.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, COUCH and McAULIFFE, JJ. and MARVIN H. SMITH, Associate Judge of the Court of Appeals of Maryland (retired), Specially Assigned.

RODOWSKY, Judge.

At issue here is when limitations began to run in this building construction case on claims asserted in arbitration by the owners against the architect and builder. In Frederick Contractors, Inc. v. Bel Pre Medical Center, Inc., 274 Md. 307, 314, 334 A.2d 526, 530 (1975), we held that "it is for the courts and not the arbitrators to determine the timeliness of a demand for arbitration...." Here the legal position of those defending the claims is that limitations began to run when the owners discovered that they might have one or more causes of action. The owners, although not disputing when "discovery" occurred, nevertheless assert that they have claims against the builder and against the architect which did not accrue until after "discovery."

Appellants, Don Hilliard and John H. Bartko, as joint venturers (H & B), own an 80,000 s.f. building, constructed from preengineered, metal sections and containing both warehouse and office space, which is leased to the appellants' incorporated moving and storage business. Appellees are the architect, Fedco Systems, Inc. (Fedco), and the general contractor, Gardiner & Gardiner, Inc. (Gardiner). Fedco and Gardiner each contracted separately with H & B. ¹ Fedco agreed to design and to supervise construction of the building, and Gardiner agreed to construct it. Each contract contained an arbitration clause. The party demanding arbitration was required to do so no later than the date by which the applicable statute of limitations would bar institution of legal or equitable proceedings based on the claim. ²

The building was plagued by leaks that were observed before construction was completed. Eventually, H & B sued both Fedco and Gardiner in the Circuit Court for Prince George's County. That complaint alleged that the leaks were caused by negligence of Gardiner during construction, and by negligence of Fedco in designing the building and in supervising construction. H & B also alleged that Gardiner had breached its contract by failing to provide a watertight building. Fedco and Gardiner sought to compel arbitration of the claims against them, and the court ordered arbitration. Four months later H & B filed demands for arbitration. Fedco and Gardiner then filed the subject actions seeking permanently to enjoin the arbitrations because H & B's demands were barred by limitations. Judgment was for Fedco and Gardiner. The trial court found that H & B knew that the building leaked more than three years before the demands for arbitration were filed. ³ H & B appealed to the Court of Special Appeals, which affirmed in an unreported opinion. We granted H & B's petition for certiorari which accepts fact-findings of the trial court and raises only questions of law.

The following chronology is relevant.

November 6, 1980 - Punch list inspection of building

by representatives of contractor

and of architect and by a partner

of H & B.

November 7, 1980 - Letter from Fedco to Gardiner

itemizing "items...noted as

being defective or needing further

attention(,)" including:

"Repair multiple roof leaks in

the warehouse area and single

roof leak in the office area of

the building."

December 3, 1980 - Inspection of building made by

representatives of H & B,

Fedco, and Gardiner. Resulting

punch list includes two items

relating to leaks in the building

Same - Date found by trial court as the

date by which building was substantially

complete and ready for occupancy.

December 19, 1980 - H & B is occupying office portion

of building, storing some

materials in warehouse portion,

and paying electric bill.

Same - Latest date, as found by trial

court, by which substantial

completion, substantial payment

by H & B, and partial

occupancy had all occurred.

Same - Date argued by Gardiner and

Fedco to be the latest date by

which limitation began to run.

January 12, 1981 - Representative of Gardiner

makes affidavit on requisition

for final payment reflecting a

balance of $163,978 on contract

sum of $1,519,634.

February 4, 1981 - Fedco approves final payment

to contractor. ⁴

February 18, 1981 - Letter from Gardiner to Fedco

confirming that all punch list

items were completed.

February 20, 1981 - Letter of February 18 transmitted

by architect to H & B.

February 23, 1981 - Letter from H & B to Fedco,

with copy to Gardiner, stating

that building continues to leak

"from numerous points in the

roof and around many of the

skylights(,)" and through the

walls. H & B states that Gardiner's

work cannot be considered

"final."

February 27, 1981 - Letter from Gardiner to H & B

acknowledging responsibility

for leaks that appear within one

year, promising future corrective

efforts, and requesting release

of final payment.

March 1981 - During this month Gardiner receives

final payment from H & B.

January 8, 1982 - Fedco issues certificate of substantial

completion as of December 1, 1980.

Certificate was backdated after

architect determined from review

of files that substantial completion

had been achieved on or about December

1, 1980.

February 16, 1982 - Letter from Fedco to H & B reflecting

that H & B had not paid balance of fee

for architectural service.

March 23, 1983 - H & B sues Fedco and Gardiner

in the Circuit Court for Prince

George's County.

August 26, 1983 - Circuit Court orders arbitration.

December 28, 1983 - H & B files with the American

Arbitration Association (AAA)

demands for arbitration against

Fedco and Gardiner. The parties have assumed that the "applicable statute of limitations," as the quoted words are used in the arbitration clauses, is Md.Code (1974, 1984 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article (CJ). It reads:

A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced.

With December 28, 1983, as the agreed date of commencement of the arbitrations, the issue is whether H & B's claims "accrued" before December 27, 1980. Conceptually those claims may sound in both contract and tort against Fedco and Gardiner respectively, unless, as Fedco argues, H & B has limited the claims it may assert in arbitration by the allegations of the circuit court complaint previously filed by it.

I

In this part we shall consider whether limitations bar a claim by H & B in contract against Fedco. But, first, we consider a procedural point raised by the architect.

A

Fedco points out that H & B's circuit court complaint filed on March 23, 1983, claimed against the architect in tort alone, and Fedco argues that no contract claim against it is involved in the arbitration. In its demand for arbitration, however, H & B described the nature of the dispute with Fedco as follows:

Alleged breach of contract and negligence in the design and construction of warehouse leased to District Moving and Storage Company, Inc. as claimed in Law Number 83-1287, Circuit Court for Prince George's County, Maryland with respect to which respondent has enjoined prosecution in Equity Number 83-0899, Circuit Court for Prince George's County, Maryland.

The H & B-Fedco contract submits to arbitration "[a]ll claims, disputes and other matters in question between the parties to this Agreement, arising out of, or relating to this Agreement or the breach thereof...." The arbitration clause incorporates the Construction Industry Arbitration Rules of the American Arbitration Association. Rule 7 (Jan. 1, 1981, ed.), "Initiation under an Arbitration Provision in a Contract," provides that the notice of arbitration "shall contain a statement setting forth the nature of the dispute...." Id. at 6. Rule 8, "Change of Claim or Counterclaim," provides:

After filing of the claim or counterclaim, if either party desires to make any new or different claim or counterclaim, same shall be made in writing and filed with the AAA.... However, after the arbitrator is appointed no new or different claim or counterclaim may be submitted without the arbitrator's consent. [Id. at 6-7.]

Although H & B's demand for arbitration describes the dispute as including an alleged breach of contract, the complaint in the civil action to which that demand also refers does not plead a contract claim against Fedco. The issue of whether a demand in this form limits the scope of an arbitration is an issue within the very broad submission of the arbitration clause and is for the arbitrator to decide. See generally Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 468 A.2d 91 (1983). Further, even if the demand for arbitration were interpreted to exclude breach of contract, the AAA Construction Industry Rules make certain provisions for amendment. Application of those rules is for the arbitrator.

Consequently, our only concern under Bel Pre, supra, is whether any H & B claim, including breach of contract, can survive the bar of limitations when H & B admittedly knew of leaks in the building more than three years before demanding arbitration.

B

The contract between Fedco and H & B divides the basic...