Court Reminds Us That Parties Are Generally Free To Shorten The Period Within Which To Start A Lawsuit
23 August 2023
Construction contracts, like other contracts, are meant to define the relationship between the parties. In that regard, the parties are generally free to negotiate the terms of that contract. It is only where the contractual language at issue is contrary to statute, against public policy, or is unreasonable, will a court decline to enforce the contract as negotiated between the parties.
While parties are generally free to negotiate to shorten (but not lengthen) the period within which to start a lawsuit (the contractual statute of limitations) from the otherwise applicable six years, where the contract’s shortened limitations period effectively nullifies the claim before it arises it will be found to be unreasonable. However, this is a very fact intensive determination, and the same shortened period may be upheld in one instance, while in the next instance the exact same time period may be deemed unreasonable by a different judge. In the recent case of Cashman Dredging and Marine Contracting Co., LLC v City of New York, a court upheld a period as short as six months.
In May of 2016, Cashman Dredging and Marine Contracting Co. entered into a contract with the City of New York for the dredging of portions of Flushing Bay in Queens. The contract contained a provision that any lawsuit relating to the project must be brought within six months of the date of substantial completion.
Once started, the project quickly encountered problems. These problems were determined to stem from the design’s failure to account for certain low tide conditions, which resulted in slope failures. While the City investigated the issue, all work was put on hold, and delays ensued. Work ultimately resumed and on October 22, 2020, the project was determined to be substantially complete.
As a result of the delays, Cashman asserted a delay claim seeking $808,013 in damages, which it set forth in its verified statement of damages on May 5, 2021. Although some negotiations were had on the delay claim, no formal determination was ever made, and no resolution was reached. In order to collect on this claim, on August 31, 2022, Cashman commenced its lawsuit. The City moved to dismiss, arguing that the claim was untimely as it had not been brought within the six month contractual limitations period. Cashman opposed, arguing that its delay claim had not accrued because no determination had been made (which it argued was, itself, a breach of the contract), and therefore its claim was timely. Cashman also cross-moved to assert a claim to compel the City to make a formal determination on its delay claim.
The motion court granted the City’s motion and dismissed Cashman’s claims (and denied its cross motion relating to a formal determination on the delay claim). In doing so, the court cited the six-month limitations period under the contract and found that the lawsuit, commenced nearly two years after substantial completion, was well outside of that limitations period. As to the argument that the claim had not yet accrued, the court noted that the delay claim, itself, was not articulated until after the six-month limitations period had expired. However, even following that logic to its conclusion, the court noted that the contract provided that City had only 60 days after the submission of the final statement of damages to act on the claim, so the proposed claim to compel any determination would, itself, have been time barred under that applicable statute of limitations.
This column often notes that the construction contract is the single most important document defining the relationship between the parties in our industry. Here, the court reminds us that parties are free to agree to shorten the time within which to start a lawsuit arising out of the contract. (Sometimes a party may do this unwittingly.) There is an exception to this freedom that the limitations period cannot be so short that it runs before the claim actually accrues. However, absent such circumstances, parties would be advised that where they have agreed to a shortened limitations period, they must exercise extra diligence to do everything they need to do to preserve and prosecute their claims within that shortened period. Consulting with construction counsel in drafting and reviewing contracts so that you can be sure that any shortened limitations period passes the reasonableness test (and does not run before the claim accrues), and how to best timely assert any claims within that shortened period, could be very helpful. Please also study your contract at the beginning of the job—not at the end.