Opinion

Heron v. US Testing

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-95-00466-CV

Heron Financial Corporation, Heron Residential Joint Venture I,

and Montecito Joint Venture, Appellants

v.

United States Testing Company, Inc., CH&A Corporation,

and Marshall & Stevens, Inc., Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT

NO. 94-02324, HONORABLE PAUL R. DAVIS, JR., JUDGE PRESIDING

Appellants Heron Financial Corporation, Heron Residential Joint Venture I, and

Montecito Joint Venture (collectively "Heron") sued appellees United States Testing Company

("U.S. Testing"), CH&A Corporation ("CH&A"), and Marshall & Stevens, Inc. ("Marshall"),

alleging negligent misrepresentation and breach of contract. Appellees moved for summary

judgment, claiming that the statute of limitations barred appellants' causes of action. The trial

court rendered judgment in appellees' favor. We will reverse the trial court's judgment and

remand the cause for further proceedings.

BACKGROUND

Contemplating the purchase of the Montecito Apartments, Heron hired Marshall

to perform a pre-purchase due diligence assessment of the property. According to appellees,

Marshall, in turn, hired U.S. Testing and Construction Surveillance Services ("CSS") to conduct

structural and environmental assessments of the property. U.S. Testing and CSS now collectively

constitute CH&A.

CH&A delivered a "Phase I Report" to Heron on July 24, 1989. The report, based

upon a review of government records and a visual inspection of the property, revealed no

hazardous materials (other than minimal amounts of maintenance supplies) and no documented

evidence of soil or groundwater contamination on the property. On the same date, CH&A also

delivered to Heron a "Limited Condition Assessment" of the property. The assessment noted

movement or settling in several of the buildings and recommended that Heron perform an

engineering study to obtain further information about the cause of the movement.

Heron purchased the property in August 1989. On March 2, 1990, CH&A

delivered another report to Heron. This report notified Heron that a landfill existed adjacent to

the Montecito property. However, the report noted that the landfill posed no environmental

hazard to the property.

Sometime in 1992, methane gas began to surface from underneath the Montecito

property. Heron eventually hired the Radian Corporation ("Radian") to conduct an environmental

assessment of the property. Radian discovered that the property sat, in part, atop an old landfill.

Radian advised that the landfill contained "several physical hazards which pose a potential threat

to human health and to structures." Furthermore, Radian noted that hazardous quantities of

methane gas were found underneath the property.

In March 1994, Heron sued appellees alleging negligent misrepresentation and

breach of contract. CH&A filed a motion for summary judgment, claiming that (1) the statute of

limitations barred Heron's claims, and (2) no contract existed between Heron and CH&A. The

trial court granted CH&A's motion.

Marshall filed its own motion for summary judgment claiming that the statute of

limitations barred Heron's claims against it. Heron amended its petition alleging that Marshall

fraudulently concealed discovery of the facts of the injury. The trial court granted Marshall's

motion.

DISCUSSION

In their first point of error, (1) appellants complain that their claims are not time-barred because the discovery rule tolled the statute of limitations. Appellants argue that a genuine

issue of material fact exists as to when they should have discovered the nature of their injury.

In applying the statute of limitations, a tort action accrues when the wrongful act

effects an injury, regardless of when the plaintiff learns of such injury. Moreno v. Sterling Drug

Co. Inc. , 787 S.W.2d 348, 351 (Tex. 1990). In a breach of contract action, limitations generally

begin to run from the time of the breach. See Enterprise-Laredo Assocs. v. Hachar's, Inc. , 839

S.W.2d 822, 837 (Tex. App.--San Antonio), writ denied per curiam , 843 S.W.2d 476 (Tex. 1992).

In the instant cause, Heron alleges that their tort and contract claims derive from

alleged acts or omissions made in the July 24, 1989 reports. Therefore, both the negligence and

contract claims began to accrue on or about July 24, 1989. Negligence claims must be filed

within two years of the alleged act. Tex. Civ. Prac. & Rem. Code Ann. § 16.003 (West 1989).

A four-year statute of limitations governs breach of contract claims. Tex. Civ. Prac. & Rem.

Code Ann. § 16.051 (West 1986). Therefore, assuming that the discovery rule does not apply,

Heron's negligence and contract claims were time-barred on July 24, 1991 and 1993, respectively.

Heron filed suit after these dates. We therefore examine the application of the discovery rule to

determine if Heron's claims are time-barred.

The discovery rule creates an exception to application of the statute of limitations.

The discovery rule tolls the running of the period of limitations until the time the plaintiff

discovers, or should have discovered, the nature of the injury. Moreno , 787 S.W.2d at 351 . The

discovery rule imposes a duty on the plaintiff to exercise reasonable diligence to discover facts

of negligence or omission. Southwestern Bell Media, Inc. v. Lyles , 825 S.W.2d 488, 492-493

(Tex. App.--Houston [1st Dist.] 1992, writ denied). When the plaintiff discovered or should have

discovered the injury and whether the plaintiff exercised due diligence are questions of fact . See

Willis v. Maverick , 760 S.W.2d 642, 647 (Tex. 1988); Lyles , 825 S.W.2d at 493 . Moreover, a

discovery rule analysis applies to both tort and contract actions alike. See Enterprise-Laredo

Assocs. , 839 S.W.2d at 837 ; El Paso Assocs., Ltd. v. J.R. Thrueman & Co. , 786 S.W.2d 17, 20-21 (Tex. App.--El Paso 1990, no writ). The Texas Supreme Court recently held that the discovery

rule tolls the applicable statute of limitations when (1) the nature of the injury is inherently

undiscoverable, and (2) the evidence of injury is objectively verifiable. Computer Assocs. Int'l

v. Altai, Inc. , 39 Tex. Sup. Ct. J. 422, 425 (March 16, 1996).

A defendant is entitled to summary judgment based on an affirmative defense if it

proves as a matter of law all of the elements of the affirmative defense. Montgomery v. Kennedy ,

669 S.W.2d 309, 310-311 (Tex. 1984). When a defendant seeks summary judgment based on the

statute of limitations, it must prove when the cause of action accrued and must negate the

applicability of the discovery rule. Burns v. Thomas , 786 S.W.2d 266, 267 (Tex. 1990).

Under the first prong of the Altai test, the nature of the injury must be inherently

undiscoverable. The summary-judgment record does not establish as a matter of law either (1)

when Heron discovered or should have discovered the injury, or (2) whether Heron exercised due

diligence in attempting to discover the injury.

At the outset, we note that lay persons do not possess the same expertise as

engineering consultants and cannot be expected to assess the competence of engineering reports.

See Thompson v. Espey Huston & Assocs., Inc. , 899 S.W.2d 415, 423 (Tex. App.--Austin 1995,

no writ). As such, in the past this Court has applied the discovery rule in cases involving

engineering consultations and reports. Id.

The 1989 "Limited Condition Assessment" noted movement or settling in several

of the buildings and recommended that Heron perform an engineering study to obtain further

information about the cause of the movement. However, nothing in the report suggested either

the presence of a landfill or the hazards which Radian eventually discovered.

Moreover, the 1989 "Phase I Report" specifically observed that there was no

documented evidence of hazardous materials on the property. Furthermore, CH&A's 1990 report

concluded that the distress to the buildings was likely caused by the expansion and contraction of

clay formations and that there were no appreciable quantities of hazardous materials on the

property. Given the summary-judgment evidence, appellees have not shown as a matter of law

when Heron should have discovered the alleged injury. Rather, this question is one for the trier

of fact.

The second prong of the Altai test inquires whether the evidence of injury is

objectively verifiable. Altai , 39 Tex. Sup. Ct. J. at 425 . Appellees argue that appellants' claims

require proof by expert testimony which cannot be objectively evaluated. In making this

argument, appellees rely upon Robinson v. Weaver , 550 S.W.2d 18, 21 (Tex. 1977).

In Robinson , the plaintiff injured his back. His physician diagnosed the disc

between his fourth and fifth lumbar vertebrae as herniated. The physician surgically "repaired"

the disc diagnosed as herniated. Because the plaintiff continued to suffer, he consulted another

physician who diagnosed another disc as being herniated and removed it. The plaintiff then sued

the first physician for having misdiagnosed his condition and operated on the wrong intervertebral

disc. Id. at 19 .

The Robinson court held that the discovery rule did not toll the statute of

limitations. The very evidence which would have been required to show the extent of the injury,

the intervertebral discs, had been altered and/or removed. Consequently, the court emphasized

that there was no physical evidence at the time of trial to verify the extent of the physical injury

and, therefore, expert testimony would be required to prove liability. Id. at 22 . The court

distinguished those medical malpractice cases where the physical evidence, without the aid of

expert testimony, permitted objective verification of injury. See, e.g., Gaddis v. Smith , 417

S.W.2d 577 (Tex. 1967) (surgical sponge left in patient's body); Hays v. Hall , 488 S.W.2d 412

(pregnant woman objectively verified that husband's vasectomy operation was ineffective).

Appellees contend that they cannot be held strictly liable for any injury, but rather

they are liable only if they negligently failed to discover the hazardous conditions. Appellees

draw a sharp distinction between damages and negligence, arguing that the physical evidence of

the injury itself has no bearing on the issue of whether they failed to discover the injury.

Appellees argue that because proof of their negligence would depend upon expert and fact witness

testimony, under Robinson the discovery rule did not apply, and therefore, the statute of

limitations ran on all of appellants' claims.

We believe that appellees read Robinson too broadly. Appellees' argument

essentially reaches the merits of the case: were they negligent? In contrast, when determining

whether the statute of limitations bars a given action, the court is not primarily concerned with

the merits of the case. See Robinson , 550 S.W.2d at 20 ("Statutes of limitations are not directed

to the merits of any individual case, . . . . The primary purpose of limitations, to prevent

litigation of stale or fraudulent claims, must be kept in mind."). Instead, the court focuses on the

evidence in order to assure that the policy underpinnings of the statute of limitations are met:

avoiding fraudulent claims. See Altai , 39 Tex. Sup. Ct. J. at 426 .

With this in mind, we do not interpret Robinson as holding that the discovery rule

does not apply whenever the issue of ultimate liability might require proof by expert testimony.

As we understand the case, Robinson holds that the discovery rule is inapplicable when no

physical evidence exists at the time of trial to verify the physical injury. Therefore, we must

determine whether appellants' injury is objectively verifiable by physical evidence.

In the instant cause, Radian's report revealed (1) a landfill partially underneath

appellants' property which poses numerous physical dangers, and (2) the presence of hazardous

quantities of methane gas. The report suggests that the landfill has existed for decades and was

present at the time appellees made their reports. Appellees do not contest Radian's findings.

Therefore, we conclude that there exists, as a matter of law, objectively verifiable evidence of

appellants' alleged injury. We sustain appellants' first point of error and hold that the statute of

limitations does not bar their contract and tort claims as a matter of law.

In their second point of error, appellants contend that their contract claims against

CH&A should not be barred on the ground that no contract existed between appellants and

CH&A. In response, CH&A argues that the only contract was between Heron and Marshall.

Therefore, Heron can have no contract claims against CH&A. Appellants counter that there exists

a genuine issue of material fact as to whether there existed a contractual agreement between

themselves and CH&A. We agree.

Robert Lacy, a representative of Heron, testified by affidavit that Heron had hired

CH&A as well as Marshall to examine the property. Furthermore, Marshall responded in

discovery that Heron hired Marshall and CH&A jointly. Given this summary-judgment evidence,

we cannot say that, as a matter of law, there existed no contractual agreement between Heron and

CH&A. Rather, this question is one for the trier of fact. We sustain appellants' second point of

error.

In their third point of error, appellants complain that their contract claims are not

time-barred because appellees are guilty of fraudulent concealment which bars the statute of

limitations defense. In point of error one, we noted that (1) the discovery rule analysis applies

to both tort and contract claims, and (2) in the instant cause, there exists a genuine issue of

material fact as to whether the discovery rule tolled the statute of limitations as to both the tort

and contract claims. Having already found that there exists a genuine issue of material fact as to

whether the contract claims were time-barred, we need not consider appellants' third point of

error.

CONCLUSION

Having determined that appellees did not demonstrate that appellants' tort and

contract causes of action were time-barred as a matter of law, we reverse the trial court's

judgment and remand the cause for further proceedings.

Marilyn Aboussie, Justice

Before Justices Aboussie, Kidd and Davis *

Reversed and Remanded

Filed: June 19, 1996

Publish

* Before Tom G. Davis, Judge (retired), Court of Criminal Appeals, sitting by assignment. See

Tex. Gov't Code Ann. § 74.003 (b) (West 1988).

1. Appellant actually has presented a single point of error with three substantive

subparts. For the sake of convenience, we treat appellants' complaints as three distinct

points of error.