As 2019 came to a close, below are a handful of decisions issued by Ohio courts throughout the year that were of interest to those in the construction industry.
1. Ohio’s Tenth District Court of Appeals Provides Helpful Guidance as to When the Article 8 Process is Triggered and Again Acknowledges that the Public Owner Can Waive its Article 8 Rights
A recent decision from the Tenth District Court of Appeals provides guidance as to when an event occurs that triggers a contractor’s obligation to proceed with the Article 8 claim notice process in order to recover additional time or money.
In Accurate Electric Construction, Inc. v. The Ohio State University, 2019-Ohio-4992 (10th Dist.), the Court of Appeals recognized that when a contractor submits pricing under a normal change order process, it may take time to either come to a mutually agreeable change order or for the parties to reach an impasse. Only when it becomes apparent that the parties are at an impasse is a contractor required to initiate the Article 8 claim process.
On this project, substantial completion of the project had been achieved before the contractor provided its Article 8 notice. The trial court used that undisputed fact as proof that the contractor had failed to timely provide its Article 8 notice in the ten (10) day time period required by contract, since the notice was not given until AFTER major construction had concluded.
Unlike the trial court, the Appeals Court did not focus solely on the project’s substantial completion date as to whether the contractor had timely asserted its claim. The Appeals Court instead focused on project communications and whether the contractor timely asserted its claim within the required ten (10) day period after the occurrence of the event giving rise to the claim, which in this case was when the contractor’s change order request was ultimately denied.
The Appeals Court also found that the State could waive its Article 8 rights by its request for the contractor to resolve issues at the “field level,” which deviated from the contractual Article 8 process. The Appeals Court recognized that representations by the State, and a failure to strictly follow the Article 8 process, including its actions and inactions involving other contractor claims, could result in the Article 8 process being abandoned. When that occurs, the Appeals Court found that the State had waived its rights under the Article 8 process. Any other interpretation would be misleading to the contractor.
Going forward, the case has been remanded back to the trial court for further review based on the Appeals Court’s decision. Regardless of the ultimate outcome at the trial court level, the case serves as another reminder for both the owner and contractor to closely follow the terms of the contract with respect to how claims are to be asserted by the contractor and evaluated by the owner.
2. Ohio Appeals Courts Continue to Bar Defect Claims Asserted More Than Ten (10) Years After Substantial Completion Under Ohio’s Statute of Repose
Back in July, the Ohio Supreme Court issued its much anticipated decision involving Ohio’s statute of repose where it ruled the statute applied to both tort and contract claims (New Riegel Local Sch. Dist. Bd. of Educ. v. Buehrer Grp. Architecture & Eng’g, Inc., 157 Ohio St. 3d 164, 2019-Ohio-2851, 133 N.E.3d 482, 2019 Ohio LEXIS 1446, 2019 WL 3209991). However, the Court’s decision did not resolve whether the school district’s defect claims were ultimately time barred under Ohio’s statute of repose and instead sent that issue back to the Third District Court of Appeals.
Because of how Ohio’s statute of repose is worded (R.C. 2305.131), the statute essentially bars a claim from accruing ten (10) years after substantial completion. But what about if the claim had accrued prior to the ten (10) year period? For example, in a breach of contract action, would a claimant have additional time under Ohio’s statute of limitations from when the breach was discovered to file the lawsuit asserting a breach of contract? In that scenario, the time period to ultimately file the lawsuit asserting a breach of contract could be extended much longer than ten (10) years after substantial completion currently contemplated in the statute of repose.
On December 9, 2019, the Third District Court of Appeals in New Riegel provided guidance for those questions – at least with respect to counties in its jurisdiction1 – when it found that the school district’s claims were still time barred despite the school district’s argument that its defect claim had accrued prior to the expiration of the ten (10) year period. In particular, the Court ruled that Ohio’s statute of repose “cuts off liability for injuries arising out of defective conditions of an improvement to real estate that are brought more than ten years after the substantial completion of the improvement” (New Riegel Local Sch. Dist., Bd. of Educ. v. Buehrer Grp. Architecture & Eng’g, Inc., 2019-Ohio-5040, ¶11, 2019 Ohio App. LEXIS 5111, *9-10, 2019 WL 6701741).
In a similar finding, the Seventh District Court of Appeals2 likewise determined that another school district’s defective work claims were time barred and again applied a similar statute of repose analysis (Union Local Sch. Dist. v. Grae-Con Constr., Inc., 2019-Ohio-4877, 2019 Ohio App. LEXIS 4956). In its November 18, 2019 decision, the Seventh District Court ruled that the statute of repose “prohibits an action after a set amount of time from a certain event (substantial completion), without regard to the date of accrual, and thus it is a statute of repose that eliminates the right to a cause of action after that set amount of time from the named event” (emphasis added). The Court went on to find that Ohio’s statue of repose is “a true statute of repose, i.e., one that bars accrued claims as well as those that have not yet vested” (¶35).
Lastly, the Fifth District Court of Appeals3 also applied a “true” statute of repose analysis and barred the school district from asserting a defect claim more than ten (10) years after substantial completion (Bd. of Educ. of Tuslaw Local Sch. Dist. v. CT Taylor Co., 2019-Ohio-1731, 2019 Ohio App. LEXIS 1811, 2019 WL 2004316). This decision was issued in May of 2019, but it provides similar reasoning that both the Third and Fifth District Courts of Appeals applied after the Ohio Supreme Court had issued its decision in New Riegel.
Going forward, it remains to be seen whether the Ohio Supreme Court decides to review the “true” statute of repose analysis these appeals decisions used to deny the public school district’s defect claims. It should be noted that in the Ohio Supreme Court’s New Riegal decision this past July, Justice Kennedy may have provided a glimpse into her thinking with respect to this issue when she consented in part and dissented in part to the Court’s decision. In her separate opinion that was joined by Justice DeWine, Justice Kennedy likewise supported a “true” statute of repose analysis, which would bar defect claims ten (10) years after substantial completion regardless as to whether the claim had “accrued” before that period had expired.
Whether the Ohio Supreme Court accepts review of the likely appeals of these lower appeal court rulings remains unknown. Furthermore, the makeup of the Court could change after the upcoming November 2020 election where voters will be asked to select two of the seven seats on the Court.
3. As of December 24, 2019, Local Residency Requirements on Public Construction Projects Are Prohibited By Ohio Law
On September 24, 2019, the Ohio Supreme Court upheld a state statute signed by Governor Kasich back in 2016 that prohibited local municipalities and cities from requiring residency requirements on construction projects (City of Cleveland v. State, 2019-Ohio-3820, 2019 Ohio LEXIS 1853, 2019 WL 4618510). Prior to the Ohio Supreme Court’s decision, lower court rulings had precluded the State from enforcing its statute and thereby allowing residency requirements to remain.
After the Ohio Supreme Court’s decision this past September, a motion for reconsideration was filed by the City of Cleveland, but that motion was denied on December 24, 2019 by the Court. With that denial, R.C. 9.75 is now enforceable and precludes residency requirements from going into effect on public contracts.
[1] Counties that reside in Ohio’s Third District Court of Appeals include Allen, Auglaize, Crawford, Defiance, Hancock, Hardin, Henry, Logan, Marion, Mercer, Paulding, Putnam, Seneca, Shelby, Union, Van Wert, and Wyandot.
[2] Counties that reside in Ohio’s Seventh District Court of Appeals include Belmont, Carroll, Columbiana, Harrison, Jefferson, Mahoning, Monroe, and Noble.
[3] Counties that reside in Ohio’s Fifth District Court of Appeals include Ashland, Coshocton, Delaware, Fairfield, Guernsey, Holmes, Knox, Licking, Morgan, Morrow, Muskingum, Perry, Richland, Stark, and Tuscarawas.
