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JONES & LAUGHLIN STEEL CORP. v. JOHNS-MANVILLE SAL

June 26, 1978

JONES & LAUGHLIN STEEL CORP., a corporation, Plaintiff
v.
JOHNS-MANVILLE SALES CORP., a corporation, Defendant and Third-Party Plaintiff v. BROWN & KERR, INC., J. M. FOSTER COMPANY, INC., WESTERN CONTRACTING CORPORATION, and S. M. WILSON COMPANY, d/b/a HENNEPIN CONTRACTORS, Defendants v. PULLMAN, INC., Third-Party Defendant


Weber, J.


The opinion of the court was delivered by: WEBER

This is an action brought by Jones & Laughlin Steel Corp. (J&L) to recover damages resulting from certain defects in the roof of its steel plant in Hennepin, Illinois. Plaintiff contends that it will be necessary to replace the roof at a cost of about 3.7 million. Presently before the Court are seven motions for summary judgment or partial summary judgment filed by various defendants. The motions raise questions of (1) the appropriate statutes of limitations and when the limitation periods begin to run; (2) whether the roofing bond given by defendant Johns-Manville limits its liability to the amount of the bond; and (3) whether the claims for contribution or indemnity are barred under Illinois law.

 It is not disputed that the roof in question was completed by August 30, 1967. This action was filed August 7, 1972 against defendant Johns-Manville Sales Corp. (J-M), who manufactured and sold the insulation and components of the roof membrane and who, according to J&L, recommended specifications, approved the design of the roof, and performed inspection services.

 J-M in turn joined as third-party defendants: Brown & Kerr, Inc. (Brown & Kerr), who was the subcontractor responsible for installing the roof insulation and built-up roof membrane; the Swindell-Dressler Company Division of Pullman, Inc. (Swindell-Dressler), who provided engineering services with respect to the planning, design and preparation of specifications for the plan; and Hennepin Contractors (Hennepin), a joint venture composed of J. M. Foster Company, Inc., Western Contracting Corp. and S.M. Wilson Company, who together acted as general contractor for the construction of the steel mill in Hennepin, Illinois. J-M's joinder of these parties was on November 7, 1972. By motion filed March 9, 1973, and approved by the Court on April 11, 1973, plaintiff J&L amended its complaint and added Brown & Kerr and Hennepin as original defendants. These parties were thus joined by plaintiff at a time in excess of five years from the date the roof was completed. Five years is the general period of limitations applicable to actions to recover damages for an injury to property under Illinois law, unlike the six year statute of limitations under Pennsylvania law. The defendant and third-party defendant have filed various cross-claims against each other, alleging rights to contractual or common law indemnity or contribution.

 Defendant J-M has filed two motions for summary judgment. One raises the statute of limitations defense. The second, which requests partial summary judgment only, seeks an order limiting liability to $253,120, which is the amount of a roofing bond issued by J-M to J&L.

 Defendant Hennepin Contractors has filed four motions for summary judgment, one each for the four other parties to this lawsuit. As to plaintiff J&L, Hennepin designates its motion as one for partial summary judgment and raises two grounds: (1) that the claim in the amended complaint that added Hennepin as a direct defendant was barred by the Illinois five year statute of limitations and (2) that no implied warranty of fitness for intended purpose exists, as the Uniform Commercial Code is inapplicable to construction contracts and in any event carries a four year statute of limitations. As to co-defendant J-M, Hennepin presses three grounds: (1) the statute of limitations, (2) the lack of any express or implied warranties of fitness for intended purpose, and (3) the non-recognition of indemnity or contribution among joint tortfeasors under Illinois law. As to co-defendant Brown & Kerr and third party defendant Swindell-Dressler, Hennepin rests its summary judgment motion solely on the non-recognition of indemnity and contribution against joint tortfeasors under Illinois law.

 We note that neither plaintiff J&L nor third party defendant Swindell-Dressler has filed a motion for summary judgment, and to some extent their positions are temporarily aligned.

 Our initial inquiry is whether Illinois law applies, and if so, how it is to be applied. No party questions that indemnity and contribution are recoverable under Pennsylvania law. Nor is there any doubt that the claims are timely if Pennsylvania's six year statute of limitations is applicable. The applicability of the four year limitation period in § 2-725 of the Uniform Commercial Code, which has been adopted in both Pennsylvania and Illinois, has also been raised and will be discussed.

 I. The State of Limitations

 Since this is a diversity action, we must, like a Pennsylvania state court, apply the Pennsylvania choice of law rules to determine what statute of limitations is applicable. Guaranty Trust Co. v. York, 326 U.S. 99, 65 S. Ct. 1464, 89 L. Ed. 2079 (1945). In most situations, Pennsylvania courts apply the statute of limitations of the forum, Freeman v. Lawton, 353 Pa. 613, 46 A.2d 205 (1946), but there is a statutory exception to this rule:

 
"When a cause of action has been fully barred by the laws of the state or country in which it arose, such bar shall be a complete defense to an action thereon brought in any of the courts of this commonwealth. " 12 P.S. § 39.

 Thus, if the cause of action "arose" in Illinois, reference must be made to the appropriate Illinois statute of limitations. In determining where the cause of action arose, we are guided by Mack Trucks, Inc. v. Bendix-Westinghouse Auto. A.B. Co., 372 F.2d 18 (3d Cir. 1966). Mack Trucks held that a manufacturer's action against a supplier for indemnity for a Florida judgment paid more than three years earlier was barred by the Florida statute of limitations. The Court there said:

 
"We think the concept of when a cause of action arises and the concept of where a cause arises, both used to aid in the application of statutes of limitations, are in pari materia. In other words, the cause arises where as well as when the final significant event that is essential to a suable claim occurs."

 In the present case, the "final significant event" occurred in Illinois, whether this event is the construction of the roof or the occurrence or appearance of the damage to the roof.

 The same result is reached if we apply the approach to this problem espoused by Judge Freedman in his dissent in Mack Trucks. He suggested that "when" a cause of action arises should be determined by applying the general choice of law principles as found, for example, in Griffith v. United Airlines, Inc., 416 Pa. 1, 203 A.2d 796 (1964). Griffith rejected the old "lex loci delecti" rule in favor of what might be called a "center of gravity" or "grouping of contacts" test under which the law of the jurisdiction having the greater interest in the outcome is to be applied.

 Plaintiff argues, however, that even if Illinois law applies and the cause of action arose in Illinois, Pennsylvania law still applies to determine when the cause of action arose. At first blush this argument appears to be completely without merit. The Pennsylvania Borrowing Statute, 12 P.S. § 39, requires the court to determine whether the cause of action is barred by the laws of the jurisdiction under which it arises. It seems apparent that such determination depends not only on the period of limitations prescribed by the foreign jurisdiction but also on its rules as to when the statute begins to run and what circumstances may toll its running.

 According to Prince's analysis of Mack Trucks, the Circuit in Mack Trucks first determined when the cause of action arose by reference to Pennsylvania law. Then, says Prince, the Circuit equated " when a cause of action arose" with "where a cause of action arose", finding them to be " in pari materia ". Finally, says Prince, the Circuit applied the Florida statute of limitations as a simple chronological measure from that date, which was determined under Pennsylvania law.

 We do not agree with Prince's reading of Mack Trucks. Mack Trucks did not decide the question presented in Prince and in the case at bar. There was no suggestion in Mack Trucks that Florida would have commenced the running of the statute of limitations on a date different than Pennsylvania would have. In choosing the date on which the underlying judgment was satisfied as the date on which the statute began to run, Mack Trucks relied not only on Pennsylvania cases but also on cases from other jurisdictions.

 
"In this context, the familiar rule is that the statute begins to run when the cause of action arises, as determined by the occurrence of the final significant event necessary to make the claim suable. Foley v. Pittsburgh Des Moines Co., 1949, 363 Pa. 1, 68 A.2d 517; Bell v. Brady 1943, 346 Pa. 666, 31 A. 2d 547; Shaffer's Estate, 1910, 228 Pa. 36, 76 A. 716. With reference to claims for indemnification for loss, this means that the cause arises when the plaintiff sustains the loss for which he can claim indemnification. Chicago, R.I. and Pacific Ry. v. United States, 7th Cir. 1955, 220 F.2d 939; Northwest Airlines, Inc. v. Glenn L. Martin Co., D. Md. 1958, 161 F. Supp. 452; Hidick v. Orion Shipping & Trading Co., S.D.N.Y. 1957, 157 F. Supp. 477; Globe Indemnity Co. v. Larkin, 1944, 62 Cal. App. 2d 891, 145 P. 2d 633". 373 F.2d at 20.

 Mack Trucks explicitly mentioned the possibility that the statute might be tolled for some reason:

 
"There is no contention or evidence that the statute was tolled for any period. Accordingly, since this cause accrued not later than June 30, 1960, the date upon which Mack's satisfaction of the Florida judgment was entered in the records of the Florida court, the present action was barred at the time of its filing on October 10, 1963." Id. at 21.

 A further difficulty in applying Prince, which is not binding on this court, is that its finely honed analysis of Mack Trucks was unnecessary to its outcome. That is so because the court held that regardless of its determination of that issue both Pennsylvania and New Jersey law permitted the cause of action as both followed the "discovery" rule under the circumstances of that case. We cannot as J - M suggests, dismiss the Prince language as a mere dictum, but the fact that it is an alternative holding does mitigate its impact.

 We are persuaded that Prince undermines the purpose of Pennsylvania's Borrowing Statute which we are bound to follow. The statute is unequivocal that an action is barred in Pennsylvania if it is barred by the laws of the state in which it arose. For the purposes of this statute of limitations we are in effect directed to sit as a court in Illinois and apply the law of Illinois.

 While we have determined that the Illinois statute of limitations is applicable, we note parenthetically that under Pennsylvania law a cause of action of this kind does not accrue until the injured party knows or should know of his injury. Med-Mar, Inc. v. Dilworth, 214 Pa. Super. 402, 257 A.2d 910 (1969), allocatur denied, held that where the roof of a building became saturated with water due to a construction error but the defect did not come to the owner's attention until eight and one-half years after completion of the building when the owner noticed a pungent odor caused by rotting materials, the owner's action alleging negligent design was not barred by the Pennsylvania six year period of limitation, running from the date of performance.

 Ironically, Med-Mar arrived at this conclusion in part by adopting the reasoning of the Illinois case of Van Buskirk v. Murden, 22 Ill. 446 (1859), a case not involving the statute of limitations. Van Buskirk reversed a trial court instruction that in the absence of fraud the acceptance of a house without objection was a waiver of all defects in the plastering:

 
"Everyone can see that this is too broad altogether, and well calculated to do great injustice, and is not the law. Had the court restricted it to visible defects, it would have been well. It is monstrous to say, in reference to plasterer's work, that all defects are waived when such work is accepted without objection and in satisfaction of the contract -- all visible defects, or such as could be ascertained by inspection and examination, could be waived, but how can the employer tell by looking at a smooth coat of plastering, everything fair to the eye, whether the lathing has been done properly, or the mortar well made with due proportions of lime, sand and hair, to give it adhesion, hardness and durability. No man can tell, and therefore it is that the party should not be bound by an acceptance, or acceptance considered as a waiver of latent defects, which too often lurk in plastering, which to the eye appears very fine and unexceptionable."

 Despite the language of Van Buskirk, on the question of when the statute of limitations begins to run, Illinois law sets that time as that of delivery or of completion of construction. A complete exposition of the law of Illinois as to when the statute of limitations runs in actions alleging negligence is found in Gates Rubber Co. v. USM Corp., 508 F.2d 603 (7th Cir. 1975). There, Circuit Judge Stevens, now Mr. Justice Stevens, held that in an action alleging negligence in the design, manufacture and installation of a lead extrusion press the cause of action accrued at the time of delivery of the press, not when it failed to operate properly.

 The district court in Gates had entered summary judgment for defendants. In affirming, the Seventh Circuit acknowledged that in three recent cases the Illinois Supreme Court had applied the "discovery" rule. Judge Stevens distinguished those cases and applied the "date of injury" rule found in six other Illinois appellate court decisions. The three cases applying the discovery rule were distinguished on the grounds that in each of them the Illinois Supreme Court attached importance to special facts not present in Gates:

 
"Two of the cases involved personal injuries; in all three there was a disparity between the parties which made the plaintiff especially ...

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