State v. Perini: New Jersey Supreme Court Has Its Say on Statute of Repose
By Denise N. Yasinow, Christopher A. Barbarisi, and Loly G. Tor, K&L Gates, Newark
Recently, the New Jersey Supreme Court shed some new light on an old question impacting construction claims, i.e., when does the statute of repose commence? In New Jersey, the statute of repose[1] bars actions “arising out of the defective and unsafe condition of an improvement to real property” that are brought “more than 10 years after the performance or furnishing of such services and construction.”[2] In State v. Perini Corporation,[3] the Court examined the question in the context of a claim involving an improvement that serviced a larger, phased construction project. The Supreme Court affirmed, as modified, the Appellate Division’s decision,[4] holding that the statute of repose did not commence until the date of substantial completion of the entire overall phased project.
In Perini, the improvement at issue was the installation of a high temperature hot water (“HTHW”) system within a larger construction project of a 26-building medium- and minimum-security prison. The project included an underground HTHW distribution system with a central plant from which hot water was to be distributed to the various buildings. The State of New Jersey was the owner of the project, and various entities were involved in the installation of the HTHW system, such as the general contractor, architect and engineer, HVAC subcontractor, manufacturer of the underground piping, and the construction oversight contractor. All of these entities eventually became named defendants when the State brought suit, claiming defective HTHW installation.
Of particular importance, construction on the project was implemented in three phases: Phase I, Phase IIA, and Phase II. Phase I included, inter alia, the central plant, perimeter fencing, and certain inmate housing units. Certificates of substantial completion were executed on May 16, 1997, for Phase I items, and approximately 960 inmates occupied the Phase I housing units soon thereafter. Phase IIA encompassed several other buildings, including housing units for another 960 inmates. Certificates of substantial completion for those buildings were executed between July 15, 1997 and October 27, 1997. Finally, Phase II included a minimum-security unit housing more than 1,000 inmates and a garage. The certificates of substantial completion for Phase II were issued on May 1, 1998. The various buildings that compose the project were connected to the HTHW distribution system as they were completed, and a certificate of substantial completion was never issued specifically for the HTHW system.
On April 28, 2008, the State filed a complaint against defendant contractors, subcontractors, and pipe manufacturer, alleging that the HTHW system failed in March 2000 and on several subsequent occasions. The State alleged that these failures were caused by “various defects including design defects, defective site preparation for the pipes, defective pipes, and deficient system design.”
On the issue of the 10-year statute of repose, the trial court granted summary judgment for contractor and subcontractor defendants. The court found that the project was substantially complete before April 28, 1998, due mainly to the high occupancy of inmates at the prison facility on or before April 28, 1998. Therefore, the State’s claims as to the contractor and subcontractor defendants were barred. On appeal, the Appellate Division reversed, finding that the statute of repose was triggered when defendants substantially completed their work on the entire project, which was no earlier than the date that the last phase, Phase II, was substantially complete—May 1, 1998.
On appeal once more, the Supreme Court sided with the State in finding that the statute of repose had not expired. It concluded, as a threshold matter, that the HTHW system was an improvement to real property that fell within the scope of the statute of repose.
It then concluded that the triggering date must be the date of substantial completion of the entire project, not just the date of substantial completion of the central plant or the first group of inmate housing units. The Court reasoned that the HTHW system was “designed to form a unified whole that interacts with and is connected to every structure of the prison complex.” Additionally, there were “no lengthy gaps of time between one phase and another.” With this in mind, the Court held, in part, that “the statute of repose does not begin to run on claims involving an improvement that serves an entire project—including those parts constructed in multiple, uninterrupted phases—until all buildings served by the improvement have been connected to it.”
As such, the date of substantial completion of the final phase, May 1, 1998, was the trigger for calculating the commencement of the 10-year repose period. Since the State filed its complaint on April 28, 2008, it would not be barred by the statute of repose.
As a practical matter, Perini may be a blessing to owners and a curse to contractors and subcontractors in that it may elongate the statute of repose in the construction context. Parties that may have held out hope that the Supreme Court would reach a different conclusion than the Appellate Division must now resign themselves to the fact that Perini is the law in New Jersey.
[1] N.J.S.A. 2A:14-1.1(1)
[2] Id.
[3] No. 070558 (N.J. April 30, 2015)
[4] Nos. A-3268-10T4, A-3269-10T4 (N.J. Super. Ct. App. Div. March 30, 2012)