On October 27, 2022, the Washington State Supreme Court issued a decision which could have a substantial impact on the enforceability of contract clauses that require litigation to be commenced within a stated period of time from project completion. In Tadych v. Noble Ridge Construction, Inc.,the Supreme Court held that the contractual one-year statute of limitations for bringing claims against the contractor was substantively unconscionable and reversed the Court of Appeals.
In Tadych, plaintiff owners (the Tadychs) contracted with defendant contractor (Noble Ridge Construction, Inc., or NRC) for the construction of a custom home in 2012. The contract included a one-year claim limitations clause that required claims to be raised within a one year period from project completion and that any claims not raised during the one-year period would be waived. In December 2013, as the project neared completion, the Tadychs met with NRC to identify any outstanding project issues. The Tadychs noted several, including rainwater pools at the landing at the bottom of the stairs and several nicks and cracks on the stucco exterior walls.
The Tadychs moved into the home on April 8, 2014, and the City of Seattle Department of Planning and Development conducted its final site inspection on April 15 and approved the residence for occupancy on April 23. In January or February of 2015, the Tadychs began to notice a shift in their home. In February of 2015, the Tadychs engaged the Construction Dispute Resolution (CDR) to review NRC’s work. CDR raised concerns about the adequacy of the home’s construction and prepared a written report in March 2015 indicating several deviations from the architectural plans and building codes. The Tadychs sent this report to NRC, who assured the Tadychs that NRC’s work followed all requirements and rejected any claims that there were deviations from the plans. The Tadychs continued to notice issues with the home through October 2016.
In August 2017, the Tadychs filed a breach of contract action against NRC, arguing that the one-year claim limitations clause was substantively unconscionable because they could not have discovered the latent defects within that time period or, alternatively, that NRC should be estopped from asserting it. NRC moved for summary judgment, arguing that the Tadychs’ lawsuit was time-barred under the one-year contractual claim period. The trial court granted summary judgment in favor of NRC and the Court of Appeals affirmed. The Supreme Court reversed the Court of Appeals and ordered the matter go to trial.
The Supreme Court held that the one-year claim limitations provision was substantively unconscionable, essentially meaning that it is too unfair to enforce. The Court reached this decision by stating that the one-year limitation deprived the Tadychs of the six-year statute of limitations established under chapter 4.16 RCW to seek damages for faulty construction. Additionally, the Court held that because the Tadychs were laypersons and NRC was a sophisticated general contractor, a power dynamic existed which gave the Tadychs less bargaining power to fully understand the contract it was entering. The Court also viewed the fact that the provision was buried in other contract language, was not expressly negotiated, and provided no benefit to the homeowners as significant factors rendering the contract term unenforceable.
Commentary: The initial reaction to this case by contractors or those who represent contractors may be that this decision is problematic for contractors seeking protection from claims for defective work that appear more than one year after project completion. However, this is a ruling that could also benefit contractors. An open question is whether this WA Supreme Court decision will have any bearing on public owners whose standard contractual terms and conditions contain suit limitation clauses and whether such clauses will be enforceable. For example, the Washington State Department of Transportation’s standard specifications provide that “all claims of causes of action which the Contractor has against the Contracting Agency arising from the Contract shall be brought within 180 calendar from the date of final acceptance.” This provision is harsher than the one in Tadych. First, it provides for a shorter claim limitation period (180 days) than the one-year period shown in Tadych. It also provides the time limitation period for only the contractor, not for the public owner. Additionally, unlike private contracts, contractors may not negotiate a public contract.
Similar provisions can be found in contractual language utilized by other public owners, such as many school districts for school construction projects. These provisions require litigation to be commenced 180 days after Project Acceptance by the public owner. It will be interesting to see if a court would find such provisions in the WSDOT standard specifications or other public works contracts substantively and procedurally unconscionable following Tadych, given the short time period, the one-way limitation, and the lack of negotiating power on public works contracts. Tadych, at a minimum, will lead contractors to challenge such clauses, and it is likely that contractors stung by other contractual waiver provisions will rely on Tadych to challenge enforceability of such provisions.