US District Court in Pennsylvania Holds Time for Suit Prescribed in Performance Bond Is Not Tolled By “Discovery Rule”

La Liberte, LLC v. Keating Building Corp. v. Roman Mosaic and Tile Co.
Civ. A. No. 07-1397, 2007 U.S. Dist. LEXIS 90878 (E.D. Pa., Dec. 11, 2007)

The United States District Court for the Eastern District of Pennsylvania dismissed the third-party complaint of the defendant holding that the statute of limitations had expired on the defendant’s performance bond claims against surety companies.

Plaintiff La Liberte LLC sued Defendant Keating Building Corporation for breach of contract, breach of implied warranty, and breach of express warranty in connection with the work Keating performed on a hotel owned by La Liberte. Under the contract between La Liberte and Keating, Keating was to make renovations and construct an addition to La Liberte’s hotel. Keating, in turn, entered into several subcontracts. Among them, Keating contracted with Voegele Mechanical Inc. and Shannon Plastering and Drywall Corporation. Both subcontracts contained warranty provisions which ran one year from acceptance by La Liberte. Voegele and Shannon obtained performance bonds for the benefit of Keating. The performance bonds contained the following identical provisions:

“Any suit under this bond must be instituted before the expiration of two (2) years from the date on which final payment under the [Subcontract] falls due or before the expiration of one (1) year from the date on which the warranties required by the [Subcontract] (including the drawings and specifications incorporated therein) expire.“

The project began in 1999 and Keating signed a certificate of substantial completion on May 1, 2000. La Liberte alleges that shortly thereafter leaks in the ceilings of several bathrooms emerged and were discovered over the course of several months. Keating’s representatives investigated and repaired the leaks by tightening shower drain bolts. Several years later in 2004, new leaks emerged and La Liberte alleges that after dismantling a shower, it discovered that the shower had been constructed incorrectly causing the leak.

On April 6, 2007, La Liberte initiated the subject action. Keating moved to dismiss the complaint alleging that Pennsylvania’s four year statute of limitation barred the claim because La Liberte had discovered the leaks in 2000. The Court denied the motion holding that it was not possible to decide the issue before discovery had taken place. The Court would have to make the factual determination as to when La Liberte discovered the leaks and then apply Pennsylvania’s statute of limitations accordingly.

Keating then asserted a third-party complaint against Voegele and Shannon’s respective sureties alleging that the sureties were liable under the performance bonds for any amounts due to La Liberte for the subcontractors’ acts, errors, omissions or other conduct on the project. The sureties moved to dismiss the third-party complaint arguing that the claims were time-barred under the terms of the performance bonds. Keating countered arguing that the Court could not determine whether the claims were time-barred without the benefit of discovery. The Court disagreed, holding that the time period for the bond claim was prescribed by the performance bond rather than the statute of limitations. That is, the claims were time-barred under the bond when filed either more than two years after final payment or one year after expiration of the warranties, regardless of when the leaks were discovered. Measuring the time period based on these specific events, the Court was able to determine with certainty that time periods had run and thus the Court granted the sureties’ respective motions to dismiss.

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