Green Building: Limitations Clock Starts at First Sign of Trouble

The Chesapeake Bay Foundation had a goal that its new waterfront location would be the nation’s first Leadership in Energy and Environmental Design (LEED) platinum building. The designer the foundation hired, SmithGroup, Inc., planned to meet that goal by utilizing a number of innovative materials and techniques. One of the materials it used on the project was Parallam, a structural material made of wood waste materials. Parallam is made from 2-foot to 8-foot wood veneer strands from second-growth trees that are bonded together under pressure using a high-strength glue. Parallam is considered a green product because it is made from wood scraps that would otherwise go to waste and because it uses timber from fast-growth trees, helping to relieve pressure on old-growth forests. Weyerhaeuser NR Company supplied the Parallam in this case, and it was used extensively for the structure’s outer shell and the exposed beams that extended beyond the roof of the building. Because of this design, some of the Parallam material was exposed to the elements, and Weyerhaeuser was also contracted to treat the Parallam members with a wood preservative, PolyClear 2000. Construction on the building began in late 1999 and was completed in December 2000. The headquarters, when completed, was an impressive addition to the Bay’s shoreline.

SmithGroup displayed the foundation’s headquarters on its website (last accessed June 11, 2012) and boasted:

Shortly after opening, however, it was discovered that water leaked into the new building when it rained. Clark Construction, the general contractor on the project, hired a forensic engineer to find the source of the leaks. The engineer’s report pointed to the weather-exposed Parallam as the problem. Noting that the Parallam members included inherent irregularities that gave them an attractive appearance, it also made them difficult to seal. The expert found some members that had not been correctly pressure-treated and others that lacked the preservative coating. If not properly addressed, an “accelerated rate of deterioration of the exposed wood elements at the building façade” was a potential result. Investigation into the water leaks continued, and, in May 2002, Clark retained a woodworking consultant. This expert found actual damage to the Parallam—splitting and movement of the trusses—that he ascribed to treatment and coating system failure that did not protect the Parallam adequately.

The foundation had been working with SmithGroup and Clark to determine the scope of the problem and how to resolve it. After receiving the expert reports in 2001 and 2002, the group notified Weyerhaeuser regarding the problems they had discovered. This was Weyerhaeuser’s first notice that there was a problem involving the Parallam. Weyerhaeuser sent its own experts to inspect and participated in remedial efforts until 2004, but it did nothing further. Its experts failed to find evidence of rotting, and Weyerhaeuser assured the foundation, Clark, and SmithGroup that the Parallam had been properly treated and that their concerns were unfounded.

The remedial efforts addressed the obvious problems but not those under the surface. During an annual inspection of the building in 2009, the foundation discovered, allegedly for the first time, that the Parallam beams were rotting and required emergency repair. After some debate as to who was responsible for the repairs, Clark and SmithGroup agreed to pay for the repair of the building together and joined the foundation in pursuing Weyerhaeuser to recover the repair costs. Not until after the repairs were completed did the foundation, SmithGroup, and Clark file suit against Weyerhaeuser, alleging breach of contract, common-law indemnity, contribution, negligent misrepresentation, and negligence. SmithGroup and Clark blamed Weyerhaeuser for inadequately treating the Parallam, for selecting an inappropriate preservative, and for misrepresenting the appropriateness of the preservative it selected. The plaintiffs sought damages for the cost of investigation, the cost of the remedial measures and the lost revenues for the loss of use while the building was being repaired. Weyerhaeuser, for its part, blamed the plaintiffs for negligently constructing and maintaining the building, for selecting or approving an inappropriate preservative for the Parallam, and for failing to take into account the seaside location (and harsher weather conditions) when designing the building. Weyerhaeuser also filed a third-party complaint against Permapost, the company with which it subcontracted to provide the preservative treatment for the Parallam. It’s not clear who actually selected the wood preservative that was used, but all the wood scientists involved agreed that it was not an appropriate choice for protecting wood exposed to the elements.

Although the case might have presented an interesting set of green-building litigation questions relating to how a court would apportion blame when innovative, green building materials fail, the court never reached the merits because it resolved the case on statute-of-limitations grounds. The statute of limitations in Maryland for breach of contract and the other alleged claims is three years. The district court applied Maryland’s discovery rule for statute-of-limitations cases. That rule holds that “the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong.” Poffenberger v. Risser, 431 A.2d 677, 680 (Md. 1981). Applying the rule, the court concluded that the foundation had both “actual and inquiry notice” of its claim because it first discovered the defects in the Parallam shortly after the building was completed, when it noticed the water leaks and received the report from the first expert inspection in 2001. While the 2001 report spoke about the potential for future problems, the 2002 report described the existing damage found as the result of improper or inadequate treatment of the Parallam members. Those facts led “ineluctably to the inference that Plaintiffs had actual awareness of the probable cause and general nature of the damage” and the “confluence of undisputed facts” compelled the conclusion that the “Plaintiffs had notice that Weyerhaeuser’s manufacturing and/or treatment process was a potential cause of the observed damage to the Parallams.” That discovery, according to the court, should have put the plaintiffs on notice that they were facing substantial problems, including the risk that the material would rot. The fact that they did not discover actual rot until 2009 was immaterial; the court said that was “just the ultimate manifestation of this constellation of injuries” that had been discovered earlier. The cause of action accrued in 2001, and the statute of limitations period expired in 2004, seven years before the plaintiffs filed suit against Weyerhauser.

The plaintiffs argued that Weyerhaeuser’s allegedly false assurances regarding the adequacy of the Parallam’s waterproofing tolled the statute of limitations. The court disagreed, holding that at the time the plaintiffs received any alleged assurances from Weyerhaeuser, they already had information from the inspection reports telling them that any such assurances were false.

The court appears to have taken the view that the plaintiffs should have known that there was a potential for massive problems as soon as they saw the first signs of water leakage around the Parallam members. It held, “Any ordinary person knows that, all else equal, wet wood rots.” The court also concluded that there were no public-interest factors weighing in favor of tolling the statute of limitations in this case. “Instead, it is a relatively insular dispute between sophisticated commercial entities.”

As Chesapeake Bay Foundation demonstrates, green-construction litigators may apply typical grounds for relief—breach of contract, breach of warranty, negligent design, and negligent construction—to new situations created as a result of a failure of green design, materials, techniques, and compliance. The same traditional defenses, such as the statute of limitations, are just as effective for fighting green-construction claims as they are for any other type of construction claim.

This means that litigators asserting or defending green-construction litigation claims are free to look to construction cases outside the green construction context for examples of best practices and pitfalls to avoid. For instance, Chesapeake Bay Foundation is not dissimilar from a high-profile lawsuit filed in 2007 by the Massachusetts Institute of Technology against Frank Gehry after its 720,000-square-foot academic complex began suffering serious problems shortly after its completion in 2004. See John A. Hawkinson, MIT settles with Gehry over Stata Ctr. defects, The Tech: Online Edition (Mar. 19, 2010).

MIT’s lawsuit listed design and construction failures such as cracking masonry, poor drainage, mold growth on the brick exterior, persistent leaks throughout the building’s interior, and sliding ice and snow. These problems were largely blamed on the envelope-pushing design of Gehry, the architect for the building. Gehry placed blame for the problems on the builder, Skanska, and Skanska in turn sued its contractor, NER Construction Management. Like Chesapeake Bay Foundation, all the players in this round robin of blame tried to place responsibility elsewhere for the problems that arose when they tried to translate the cutting edge design into reality. But unlike the Chesapeake Bay Foundation case, the plaintiffs were not barred from pursuing their claims by the statute of limitations. The parties settled the claims with a confidential agreement in 2010.

In a project as complex as the Chesapeake Bay Foundation building or the Gehry-designed MIT building, it is imperative to pin down in the design and construction contracts exactly who will be responsible for what if the building has problems, particularly when using cutting-edge design or green materials. Regular inspections and prompt collaborative action are crucial to discover and resolve problems. The plaintiffs in Chesapeake Bay Foundation conducted annual inspections of their facility, and according to the complaint they filed, that is how they first learned of extensive rot that went beyond the water leaks they had found earlier. That still did not save the Foundation’s claim because two expert reports had already warned of the potential for future damage and the actual problems already discovered. With a project that is heavy on innovation, parties should be especially vigilant for any defects, and they should assume the worst and act quickly to ensure that they preserve their right to bring a cause of action when those defects arise. In other words, even a LEED certified building can have leaks in a rainstorm. If it does, you should assume that the leak may be just the tip of the iceberg and that there may be hidden problems waiting to be discovered.

Jurisdictions throughout the country are adopting stricter standards for green construction. For example, Maryland, home to the Chesapeake Bay Foundation, became the first state to adopt the more environmentally stringent International Green Construction Code, discussed in "Implications of the International Green Construction Code," enabling local governments across the state to adopt the Code. As more jurisdictions follow suit, builders and designers will be trying new designs and new materials to meet the stricter standards. Some of these innovations will inevitably lead to defects, and some of those defects will inevitably lead to litigation. As with any traditional construction litigation, when contracting parties first notice such defects, they must investigate thoroughly and act promptly to preserve their legal claims.

Keywords: litigation, construction litigation, green building materials, statute of limitations, Leadership in Energy and Environmental Design

Jeanne Schubert Barnum and Levi Jones are with Schnader Harrison Segal & Lewis.

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