Schenkel & Shultz v. Hermon F. Fox

• Decision Date: 21 November 2006
• Docket Number: No. COA05-1604.,COA05-1604.
• Citation: 636 S.E.2d 835
• Court: North Carolina Court of Appeals
• Parties: SCHENKEL & SHULTZ, INC. Formerly known as Schenkel & Shultz, Architects, P.A., Plaintiff, v. HERMON F. FOX & ASSOCIATES, P.C., Defendant.

636 S.E.2d 835

SCHENKEL & SHULTZ, INC. Formerly known as Schenkel & Shultz, Architects, P.A., Plaintiff, v. HERMON F. FOX & ASSOCIATES, P.C., Defendant.

No. COA05-1604.

Court of Appeals of North Carolina.

November 21, 2006.

COPYRIGHT MATERIAL OMITTED

Appeal by Plaintiff from order entered 25 February 2005 by Judge Forrest Donald Bridges and order entered 8 August 2005 by Judge Timothy Kincaid in Superior Court, Mecklenburg County. Heard in the Court of Appeals 22 August 2006.

Kennedy Covington Lobdell & Hickman, LLP, by Kiran H. Mehta and Samuel T. Reaves, Charlotte, and Hamilton Martens Ballou & Sipe, LLC, by Herbert W. Hamilton, Rock Hill, for plaintiff-appellant.

Hamilton Moon Stephens Steels & Martin, PLLC, by David G. Redding and Adrianne Huffman Colgate, Charlotte, for defendant-appellee.

WYNN, Judge.

A right to indemnity may rest on the express contractual provisions between two parties and would therefore be triggered by a breach of that contract.¹ Because we find a genuine issue of material fact remains as to whether the contract in this case did, in fact, expressly provide for the indemnification of Plaintiff Schenkel & Shultz, Inc. by Defendant Hermon F. Fox & Associates, P.C., we reverse the trial court's grant of summary judgment as to Plaintiff's indemnity claim.

We further find that a genuine issue of material fact remains as to whether Fox & Associates did, in fact, breach its contract with Schenkel & Shultz, and also reverse as to Fox & Associates's counterclaim. However, because we conclude that Schenkel & Shultz knew or should have known of its injury more than three years before filing its direct claims of negligence and professional malpractice, breach of contract, and breach of warranty, we affirm the trial court's grant of summary judgment in favor of Fox & Associates on those claims.

On 24 November 1998, the Charlotte-Mecklenburg Board of Education ("the school board") contracted with Schenkel & Shultz to design a new vocational high school. The contract required Schenkel & Shultz to retain outside consultants or engineers to prepare certain portions of the work, if Schenkel & Shultz did not possess the in-house expertise necessary for the task. In April 1999, Schenkel & Shultz contracted with Fox & Associates to provide structural steel design for the school. Drawings prepared by Fox & Associates were incorporated into the final construction plans submitted to the school board, and construction commenced in the fall of 2000.

In the spring of 2001, contractors, subcontractors, and other consultants began to question the adequacy of the structural steel design prepared by Fox & Associates, who, after being notified of the issues, reviewed its design and determined certain errors had occurred. Thereafter, Fox & Associates prepared and submitted remedial designs, which required additional work by the steel fabricators and erectors on-site to correct the errors. As a result, several multi-prime contractors incurred increased costs and invoiced the school board for payments exceeding three million dollars.

On 3 October 2001, the school board sent Schenkel & Shultz a letter stating that Schenkel & Shultz would be "held responsible for the cost of corrective work along with the cost required to accelerate the schedule due to delays caused by the corrective work." The following day, Schenkel & Shultz notified Fox & Associates by letter that it would "look to [Fox & Associates] and [its] insurance carrier for full restitution of this cost."

On 5 February 2002, Schenkel & Shultz sent Fox & Associates another letter asserting that it intended to hold Fox & Associates liable for any damages associated with deficiencies in the structural steel design. Additionally, Schenkel & Shultz maintained that, "Pursuant to the . . . agreement between [Schenkel & Shultz and Fox & Associates] . . ., [Schenkel & Shultz] hereby demands that [Fox & Associates] defend, indemnify and hold harmless [Schenkel & Shultz] in connection with any such claims."

After failed mutual attempts to resolve the matter out of court, Schenkel & Shultz brought an action against Fox & Associates on 1 October 2004, alleging negligence and professional malpractice, breach of contract, breach of warranty, and indemnification. In response, Fox & Associates moved to dismiss and counterclaimed for breach of contract due to failure to pay, and thereafter moved for judgment on the pleadings. The school board, in turn, brought an action against Schenkel & Shultz for negligence and professional malpractice, breach of contract, and breach of warranty, on 29 December 2004.²

On 25 February 2005, after converting Fox & Associates's motion to dismiss to a motion for summary judgment, the trial court granted summary judgment to Fox & Associates and dismissed with prejudice Schenkel & Shultz's direct claims for negligence and professional malpractice, breach of contract, and breach of warranty, finding that such claims were barred by the statutes of limitations. Thereafter, Fox & Associates moved for summary judgment as to Schenkel & Shultz's remaining claim for indemnification and its own counterclaim for breach of contract. On 9 August 2005, the trial court granted Fox & Associates's motion as to both claims and ordered Schenkel & Shultz to pay Fox & Associates the contractual amount.

Schenkel & Shultz now appeals both orders of summary judgment, arguing that the trial courts erred by (I) dismissing its direct contract, tort, and warranty claims on the basis of the statutes of limitations; (II) granting summary judgment to Fox & Associates on the claim for indemnification; and, (III) granting summary judgment to Fox & Associates on its counterclaim for breach of contract.

I.

Schenkel & Shultz first argues the trial court erred by holding that the applicable statutes of limitations barred its direct claims under contract, tort, and warranty. We disagree.

Claims of breach of contract, negligence and professional malpractice, and breach of warranty are all governed by a three-year statute of limitations. See N.C. Gen.Stat. § 1-52(1) (2005) (breach of contract); N.C. Gen.Stat. § 1-52(5) (2005) ("any other injury to the person or rights of another, not arising on contract and not hereafter enumerated"); N.C. Gen.Stat. § 1-52(16) (2005) ("for personal injury or physical damage to claimant's property"). In most cases, the statute of limitations begins to run when the claim accrues, which generally occurs at the time of the breach. See Miller v. Randolph, 124 N.C.App. 779, 781, 478 S.E.2d 668, 670 (1996) ("The statute begins to run when the claim accrues; for a breach of contract action, the claim accrues upon breach."); see also Kaleel Builders, Inc. v. Ashby, 161 N.C.App. 34, 44, 587 S.E.2d 470, 477 (2003), disc. review denied, 358 N.C. 235, 595 S.E.2d 152 (2004) ("The statute of limitations for breach of warranty is also three years, accruing at breach."). Our Supreme Court has stated that

The accrual of the cause of action must therefore be reckoned from the time when the first injury was sustained. . . . When the right of the party is once violated, even in ever so small a degree, the injury, in the technical acceptation of that term, at once springs into existence and the cause of action is complete.

Mast v. Sapp, 140 N.C. 533, 537-40, 53 S.E. 350, 351-52 (1906). Moreover, "[t]he bar of the statute of limitations is an affirmative defense and cannot be availed of by a party who fails, in due time and proper form, to invoke its protection." Overton v. Overton, 259 N.C. 31, 36, 129 S.E.2d 593, 597 (1963).

Nevertheless, a statutory "discovery rule" offers a claimant additional time in certain contract or negligence actions to have the opportunity to discover the harm before the three-year statute of limitations begins to accrue. See N.C. Gen.Stat. § 1-52(16) (2005) ("for personal injury or physical damage to claimant's property, the cause of action . . . shall not accrue until bodily harm to the claimant or physical damage to his property becomes apparent or ought reasonably to have become apparent to the claimant, whichever event first occurs."); N.C. Gen. Stat. § 1-15(c) (2005) ("a cause of action for malpractice arising out of the performance of or failure to perform professional services shall be deemed to accrue at the time of the occurrence of the last act of the defendant giving rise to the cause of action").

Here, Schenkel & Shultz argues that a genuine issue of material fact remains as to when the causes of action began to accrue, namely, when the harm was complete or either became apparent or ought reasonably to have become apparent. Schenkel & Shultz points to its complaint, filed 1 October 2004, which asserts that the school board notified Schenkel & Shultz of its belief that there were numerous problems with the structural steel design of the project "[b]eginning in October 2001." However, in the 25 February 2005 order granting summary judgment, the trial court found that

[I]t has been established by uncontroverted evidence that [Schenkel & Shultz] had actual notice and/or reason to know of its claims arising out of any alleged negligence and professional malpractice, breach of contract and breach of warranty by [Fox & Associates] in connection with the structural steel design on the Project no later than August 9, 2001, a date more than three years prior to the filing of Plaintiff's complaint.

This finding was based on the trial court's "consideration of the pleadings, exhibits thereto, the Affidavit in Opposition to Motion for Judgment of the Pleadings filed by [Schenkel & Shultz] and the attachments thereto, and the arguments of counsel." Included in those documents was an 8 May 2001 letter from Schenkel & Shultz to the construction project manager, "acknowledg[ing] receipt of your letter dated May 3, 2001 regarding concerns raised by your structural steel subcontractor about the integrity of the structural...