Recent Case Clarifies Liability of Contractors Under Massachusetts c. 93A

By statute in Massachusetts, a negligence or other tort action for damages arising out of any deficiency or neglect in the design or construction of an improvement to real property must be commenced within three (3) years after the cause of action accrues (that is, when the property owner discovers or has sufficient notice of the damages and the cause of the damages), provided that no such action can be commenced more than six (6) years after the substantial completion of the improvement and the taking of possession for occupancy by the owner. M.G.L. Chapter 260, Section 2B. This six-year limitation is known as the statute of repose and the period is absolute and is not extended by virtue of the so-called discovery rule applicable in other contexts, including with the three-year statute of limitations mentioned in the first part of the statute.

The Massachusetts Appeals Court recently considered the issue of whether this six-year statute of repose applied to a claim brought under M.G.L. Chapter 93A, the Massachusetts statute prohibiting unfair and deceptive practices in the conduct of a trade or business. The case is Kelley v. Iantosca, decided by the Appeals Court on October 21, 2010.

In Kelley, the plaintiff had purchased a newly constructed house from Belair Construction Company in 1973 pursuant to a purchase and sale agreement entered into by the parties about nine months before the closing. Belair agreed to build the house on a lot Belair then owned in accordance with plans and specifications referenced in the agreement. In 2002, Kelley started to notice cracks in the foundation. He hired an engineer, who determined that the house was settling and cracking because the foundation had been built on unsuitable subsurface fill. Apparently, instead of removing trees that had been cut down in clearing the lot, the builder buried them among some boulders on the site and then poured the concrete for the foundation over the mixture. Over time as this organic material began to rot, the foundation began to settle unevenly, cracking in the process. In a report dated February 17, 2002, the engineer determined that further settling and cracking would occur unless intervention occurred involving significant expense.

On January 12, 2006, Kelley brought suit against Belair and its principal, Joseph Iantosca, for the repair costs alleging negligence, misrepresentation, breach of contract, and unfair business practice in violation of Chapter 93A. The Court determined that the negligence claim was barred by the statute of repose because it was commenced more than six years (actually, nearly 33 years) after the completion of construction. Recognizing that the misrepresentation claim might not be governed by the statute of repose, the Court determined that such claim was barred by the general three-year statute of limitations on tort actions. Although that three-year period is subject to the discovery rule, the Court found that Kelley was on notice of the alleged misrepresentations not later than February 17, 2002, when he received the engineer’s report and he commenced the action more than three years after such date.

The breach of contract claim was based upon the failure of Belair to construct the house in accordance with the agreed-upon specifications in the purchase and sale agreement, which specifications required the removal of all trees that interfered with construction. Belair argued that whatever contractual obligations it may have undertaken in the purchase and sale agreement had merged in the deed Kelley accepted from Belair at the closing, citing to a provision in the agreement that “acceptance of a deed by the Buyer shall be deemed to be a full performance and discharge hereof.” The Court determined, however, that this provision addressed defects in title and in the conveyance itself and not construction terms. Therefore, merger did not bar an action for breach of the construction contact in this case. Yet it was clear that a more comprehensively drafted provision would have resulted in merger and a finding in favor of the builder. The parties did not raise, and so the Court did not address, whether the contract claim was barred by the six-year statute of limitations applicable to contract actions. Generally, that six-year period begins to run from the date of the breach even though damages may not be sustained until later.

With respect to the Chapter 93A claim, the Court differentiated between those allegations relating to acts or omissions occurring during the construction process, which are barred by the statute of repose, and those occurring outside of the construction process, which are not. In other words, the Court differentiated between what Belair and its principal, Iantosca, did when they built the house and what they said about what they did, highlighting the often-encountered result that the cover-up of a mistake or breach is more harshly treated than the mistake or breach itself. The Court concluded that the statute of repose did not bar claims under Chapter 93A arising out of misrepresentations by Belair and Iantosca about how they built the house or deceit by them in the sale of the house. Note that claims under Chapter 93A are subject to a four-year statute of limitations, which, unlike the general three-year statute of limitations on tort actions discussed above, had not yet run out in this case.

The message to contractors, architects, and other building professionals is clear: you can be exposed to claims of unfair and deceptive business practices filed more than six years after completion of construction.