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Thelen Reid Brown Raysman & Steiner LLP
The
Gering-Fort Laramie Irrigation District contracted with
Baker to design and oversee relocation of irrigation structures
near Scottsbluff, Nebraska. Baker assigned Smith, an engineer
and employee of Baker, to design the project and provide
construction supervision. A contractor was hired to perform
the construction work. Construction was substantially complete
on August 25, 1993, and Baker certified that the construction
project was complete on April 5, 1994.
In
the spring of 1994, a leak was discovered in PVC pipe joints.
When the district excavated, it discovered that at the transition
point where the PVC pipe changed directions, the two PVC
pipes were field cut and wrapped in duct tape covered by
a concrete collar. A prefabricated PVC coupler had not been
used. The district replaced the concrete collar with a prefabricated
PVC coupler after determining that the joint had not been
properly constructed. Additional leaks appeared in PVC joints
in 1994, 1996 and 1997 due to improperly constructed joints.
The district advised Baker of the problem in 1997. Baker
stated that all of the PVC joints were constructed in the
same manner and that Smith had approved the method. In 1993,
Smith had prepared and submitted to the district payment
estimate No. 7 noting that 37 concrete bends, or joints,
had been used in the relocation project.
The
district filed an action for professional negligence against
Baker and Smith on August 19, 1997.
The
trial court granted Baker and Smith's motion for summary
judgment, concluding that the action was time-barred and
that the doctrine of fraudulent concealment was unavailable
to the district. The Court of Appeal reversed the trial
court's decision based, in part, on its determination that
a genuine issue of material fact existed as to whether the
district's discovery of one improperly constructed joint
would lead a reasonably prudent person to inquire regarding
the construction of the remaining joints. The Supreme Court
reversed and directed the Court of Appeals to enter an order
affirming the trial court's grant of summary judgment. Gering-Ft.
Laramie Irrigation District v. Baker, 612 N.W.2d 897,
2000 Neb. Lexis 158 (2000).
The
issues presented to the Nebraska Supreme Court were: (1)
whether the district's discovery of one defective joint
constituted discovery as a matter of law under Nebraska's
professional negligence statute and (2) whether the
district could rely on the doctrine of fraudulent concealment
to estop Baker and Smith from asserting a statute of limitation
defense.
The
court stated that the professional negligence statute requires
a suit to be commenced within two years after the alleged
"act or omission" in rendering or failing to render
professional services. The court noted that Nebraska follows
the occurrence rule, under which a professional negligence
suit accrues at the time the act or omission in rendering
or failing to render professional services takes place.
Reinke Mfg. v. Hayes, 256 Neb. 442, 590 N.W.2d 380
(1999). A plaintiff may be relieved from the two-year filing
requirement by the "discovery exception." Weaver
v. Cheung, 254 Neb. 349, 354, 576 N.W.2d 773, 777 (1998).
The discovery exception permits an action to be commenced
within one year from the earlier of (a) the date of discovery
of the cause of action or (b) the date of discovery of facts
that would reasonably lead to such discovery. The exception
is only applicable when the cause of action is not discovered
and could not have reasonably been discovered during the
basic two-year limitation period.
The
court held that the discovery exception to the statute of
limitations was inapplicable because the cause of action
could reasonably have been discovered during the two-year
limitation period. The court stated that in a professional
negligence case, "discovery of the act or omission"
occurs when the party knows of facts sufficient to put a
person of ordinary intelligence and prudence on inquiry
which, if pursued, would lead to the knowledge of facts
constituting the basis of the cause of action. The court
noted that the district determined that the joint was improperly
constructed in the spring of 1994. Further, the district
had payment estimate No. 7 in its possession indicating
that 37 such concrete bends had been installed. The court
concluded that discovery of the allegedly negligent act
or omission occurred in the spring of 1994 when the district
knew that at least one joint was improperly constructed
and that inquiry at that time would have led to knowledge
of the fact that Baker and Smith approved the improper construction
of all of the joints. Thus, the district had knowledge of
the facts constituting the cause of action.
The
court held that if the number of defective joints was in
doubt, a "lack of knowledge of the extent of damages
is not the equivalent of a lack of discovery of a cause
of action" for purposes of the statute of limitations.
The
court stated that the doctrine of fraudulent concealment
estops a defendant from asserting a statute of limitations
defense when the defendant has, either by deception or by
violation of duty, concealed material facts from the plaintiff
that prevent the plaintiff from discovering professional
negligence. The court held that the doctrine of fraudulent
concealment was inapplicable because the district discovered
the improperly constructed joint and, thus, could reasonably
have learned of its cause of action within the limitations
period.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2001 Thelen Reid Brown Raysman & Steiner LLP
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