Court Opinion

ID: 2808323
Source: CourtListenerOpinion
Date Created: 2015-06-15 16:01:15.347319+00
Date Added: 2024-06-11T11:30:08.051468
License: Public Domain

United States Court of Appeals
                           For the Eighth Circuit
                       ___________________________

                               No. 12-3919
                       ___________________________

                      Cedar Rapids Lodge & Suites, LLC,

                      lllllllllllllllllllll Plaintiff - Appellant,

James T. Rymes; Rhonda L. Coborn; Michael Coborn; Scott Shisler; Julie Shisler;
 Pamela J. Cobb Revocable Trust; Raymond Mulford; Theresa A. Mulford; Jacob
                     Sailer; Ronald Sailer; Jerrod Ruble,

                            lllllllllllllllllllll Plaintiffs,

                                           v.

   JFS Development, Inc., formerly known as JCS Development, Inc.; John F.
                             Seibert; Ted Vosburg,

                           lllllllllllllllllllll Defendants,

                     Lightowler Johnson Associates, Inc.,

                     lllllllllllllllllllll Defendant - Appellee.
                                     ____________

                    Appeal from United States District Court
                for the Northern District of Iowa - Cedar Rapids
                                 ____________

                         Submitted: September 10, 2014
                             Filed: June 15, 2015
                                ____________
Before BYE, COLLOTON, and GRUENDER, Circuit Judges.
                           ____________

COLLOTON, Circuit Judge.

       Cedar Rapids Lodge and Suites, LLC appeals from the district court’s1 grant
of summary judgment in favor of Lightowler Johnson Associates, Inc., a North
Dakota architectural firm. Cedar Rapids Lodge and Suites sued Lightowler alleging
professional negligence in connection with the design of a hotel, and the district court
ruled that the claim was barred by the statute of limitations. We affirm.

                                           I.

      In 2003, John Seibert, Mark Gabrielson, and Ted Vosburg, governors of Cedar
Rapids Lodge & Suites, obtained the rights to build an AmericInn franchise in Cedar
Rapids, Iowa. Cedar Rapids Lodge & Suites used Lightowler as the architect for the
new project. Lightowler sent Siebert a standard form agreement that included a
choice-of-law provision specifying that its terms would be governed by the law of
North Dakota.

       Lightowler provided a full set of plans for the project on November 7, 2003.
On November 20, 2003, Lightowler issued an addendum containing several changes
to the plans requested by the Cedar Rapids Fire Marshal. The next day, AmericInn
project manager Shawn Lidberg sent a letter to Siebert, with a copy to Lightowler,
listing problems with the plans’ compliance with franchise standards. On January 7,
2004, the city sent Cedar Rapids Lodge & Suites a report seeking revisions to the
architectural plans; the company forwarded the report to Lightowler. In response,
Lightowler submitted revised plans on February 27, 2004.

      1
      The Honorable Linda R. Reade, Chief Judge, United States District Court for
the Northern District of Iowa.

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       Construction began in January 2004. On July 26, 2004, Lidberg of AmericInn
led a construction site visit attended by Siebert, Gabrielson, and Vosburg of Cedar
Rapids Lodge & Suites, various AmericInn representatives, and Tim Olson, a
Lightowler engineer. Both Lidberg and Olson prepared reports detailing the design
and construction deficiencies they observed during the site visit. They provided these
reports to Siebert shortly thereafter. The last act performed by Lightowler on the
hotel project was the transmission of a document to the contractor on September 24,
2004, responding to a question about plank cuts in the stairwells.

       Lidberg of AmericInn led a second site visit on October 21, 2004. Neither
Siebert from Cedar Rapids Lodge & Suites nor anyone from Lightowler attended.
Lidberg produced a report identifying additional deficiencies and construction
concerns, and sent it to Siebert and Lightowler. On November 1, 2004, Lightowler’s
Steve Goldade sent a letter to AmericInn, with a copy to Siebert, responding to the
report from the October site visit. Goldade stated that Lightowler was not involved
in construction administration for the hotel project and had no knowledge of the
problems identified by the report.

       The hotel opened for business on December 9, 2004, but problems continued.
The city, after granting temporary certificates of occupancy, denied the hotel a final
certificate in October 2006. At a meeting on October 16, 2008, the investors in Cedar
Rapids Lodge & Suites voted to remove Siebert, Gabrielson, and Vosburg as
governors of the company.

       On December 3, 2009, Cedar Rapids Lodge & Suites brought federal claims
in the district court against the company’s former governors and others involved in
the hotel project. Invoking the district court’s supplemental jurisdiction, see 28
U.S.C. § 1367(a), the complaint also alleged professional negligence by Lightowler.
The district court granted Lightowler’s motion for summary judgment, concluding
that the claim was barred by the statute of limitations under either North Dakota law

                                         -3-
or Iowa law. The court denied a motion to reconsider, and all claims against other
parties eventually were resolved. Cedar Rapids Lodge & Suites now appeals the
order dismissing the claim against Lightowler. We review the district court’s ruling
de novo.

                                         II.

       The parties dispute whether the action is governed by North Dakota’s two-year
limitations period or Iowa’s five-year statute of limitations. Cedar Rapids Lodge &
Suites does not argue that its claim against Lightowler was timely under North
Dakota law, but contends that Iowa law applies, and that the claim was brought
within the five-year limitations period. Even accepting the applicability of Iowa law
for purposes of analysis, we conclude that the claim is untimely.

       The applicable Iowa statute provides a five-year limitations period for actions
on unwritten contracts, or those “brought for injuries to property.” Iowa Code
§ 614.1(4). When the limitations period begins to run is also governed by Iowa law.
See Walker v. Thielen Motors, Inc., 916 F.2d 450, 451 (8th Cir. 1990). The district
court concluded that Cedar Rapids Lodge & Suites had notice of problems with the
hotel design by November 2003, so that the cause of action against Lightowler
accrued more than five years before the lawsuit was filed in December 2009. Cedar
Rapids Lodge & Suites advances two reasons why the clock allegedly did not start
running until a later date that was within five years of December 2009.

                                         A.

      Cedar Rapids Lodge & Suites relies first on the “adverse domination doctrine.”
This doctrine, where applicable, holds that the statute of limitations is tolled as to
claims of wrongdoing against officers or directors of a corporation as long as they
control the corporation. See Resolution Trust Corp. v. Armbruster, 52 F.3d 748, 751

                                         -4-
(8th Cir. 1995). Cedar Rapids Lodge & Suites seeks to apply the doctrine to toll the
limitations period for a claim not against the officer or directors of the company, but
against a third party, Lightowler. The company contends that because its governors
were wrongdoers who withheld information from investors about design and
construction defects with the hotel, the statute of limitations for the company’s claim
against Lightowler did not begin to run until Siebert, Gabrielson, and Vosburg were
removed as governors in October 2008.

       The Iowa Supreme Court has not adopted the adverse domination doctrine, but
it has applied a discovery rule under which the limitations period does not begin to
run until the injured party has “actual or imputed knowledge of the facts that would
support a cause of action.” K&W Elec., Inc. v. State, 712 N.W.2d 107, 116 (Iowa
2006) (quotations omitted). The adverse domination doctrine is a logical extension
of the discovery rule in light of agency law principles. When the plaintiff is a
corporation, it must learn of an injury to the corporation through its agents. But if the
agent’s interests are adverse to the corporation, then the agent’s knowledge is not
imputed to the corporation. Lease Resolution Corp. v. Larney, 719 N.E.2d 165, 170
(Ill. App. Ct. 1999); see Clark v. Milam, 452 S.E.2d 714, 718 (W. Va. 1994) (“[A]
corporate plaintiff cannot ‘discover’ injuries to the corporation caused by those who
control the corporation.”). Under a similar rationale, Iowa does not impute an
officer’s knowledge to the corporate entity where the officer acts to the detriment of
the entity. Regal Ins. Co. v. Summit Guar. Corp., 324 N.W.2d 697, 704 (Iowa 1982);
Clapp v. Wallace, 266 N.W. 493, 495 (Iowa 1936).

      We may assume that the Iowa court would extend the discovery rule and
recognize the adverse domination doctrine when a corporation brings claims against
corporate officers who were allegedly engaged in wrongdoing. Cedar Rapids Lodge
& Suites, however, would have us go further and toll the statute of limitations for
claims of negligence against third parties who are not agents of the corporation or
alleged co-conspirators of corporate agents. That approach would take Iowa law well

                                          -5-
past anything the state supreme court has announced and beyond the law in other
jurisdictions that have recognized the adverse domination doctrine. We are not
prepared to forecast that the Iowa Supreme Court would go that far. See Indep. Trust
Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 938 (7th Cir. 2012) (declining
similar proposed extension of Illinois law).

       Cedar Rapids Lodge & Suites points to decisions from other jurisdictions that
have applied the adverse domination doctrine to toll a statute of limitations against
third parties. These decisions, however, involved claims against third parties who
were alleged co-conspirators of corporate agents. See Bornstein v. Poulos, 793 F.2d
444, 447-49 (1st Cir. 1986); IIT, an Int’l Inv. Trust v. Cornfeld, 619 F.2d 909, 929-30
(2d Cir. 1980); Resolution Trust Corp. v. Gardner, 798 F. Supp. 790, 795 (D.D.C.
1992). None of the cited authorities endorsed tolling the limitations period for claims
against a third party who, like Lightowler, is accused only of negligence in an arms-
length transaction. In the absence of a conspiracy between corporate wrongdoers and
the third-part defendant, the leading authorities decline to apply the adverse
domination doctrine. Stewart Info. Servs., 665 F.3d at 937-38; FDIC v. Shrader &
York, 991 F.2d 216, 227 (5th Cir. 1993); Buchwald v. Citibank, N.A., No. 13-cv-210
(RLW), 2013 WL 5218579, at *4-6 (D.D.C. Sept. 17, 2013). We are not convinced
that the Iowa Supreme Court would toll the statute of limitations as Cedar Rapids
Lodge & Suites proposes.

                                          B.

       Cedar Rapids Lodge & Suites urges alternatively that its cause of action did not
accrue until construction of the hotel was substantially completed on December 9,
2004. In that event, the claim filed on December 3, 2009, would be within the five-
year statute of limitations.

                                         -6-
       In Iowa, “a cause of action based on negligence does not accrue until plaintiff
has in fact discovered that he has suffered injury or by the exercise of reasonable
diligence should have discovered it.” Chrischilles v. Griswold, 150 N.W.2d 94, 100
(Iowa 1967). Cedar Rapids Lodge & Suites alleges that Lightowler was negligent in
the design and preparation of the project drawings, in failing to identify construction
defects, and in failing to communicate defects to the owners, AmericInn, or the city.
Given the undisputed facts, including letters, reports, and site visits between
November 2003 and November 2004, Cedar Rapids Lodge & Suites was on notice
that there was at least reason to inquire in the exercise of reasonable diligence about
potential negligence of Lightowler more than five years before this action was filed
in December 2009.

        Cedar Rapids Lodge & Suites contends, however, that even if it was on notice
of potential negligence by Lightowler, its cause of action against Lightowler did not
accrue until construction of the hotel was substantially completed. The notion here
is that a client “has a right to repose confidence in the professional’s ability and good
faith, and realistically cannot be expected to question and assess the techniques
employed or the manner in which services are rendered” while the provision of
services is underway. In re Clark Patterson Eng’rs, Surveyor, & Architects, P.C., 25
A.D.3d 984, 986 (N.Y. App. Div. 2006). Sometimes described as “the continuous
representation doctrine,” the rule is said to reflect “both the unfairness of requiring
the injured client to challenge its professional advisor while remedial efforts are
under way and the potential abuse where the negligent advisor attempts to avoid
liability by diverting the client from bringing a legal action until the limitations period
expires.” Id. (internal citations omitted); see Wagner v. Sellinger, 847 A.2d 1151,
1155 (D.C. 2004).

        The Iowa Supreme Court has not addressed the continuous representation rule,
but its treatment of the analogous “continuous treatment rule” in medical malpractice
actions suggests that it would not accept Cedar Rapids Lodge & Suites’s position.

                                           -7-
In a medical malpractice case in Iowa, “when a plaintiff receives continuing care for
the same injury from a negligent actor whose malpractice is at issue, the statute of
limitations may be tolled until the treatment ceases.” McClendon v. Beck, 569
N.W.2d 382, 385 (Iowa 1997) (emphasis added). The Iowa court, however, has
declined to apply the continuous treatment rule when the plaintiff had notice of
negligence prior to the termination of treatment: “If there is actual proof that the
patient knows or reasonably should know of the injury or harm before termination
of medical treatment, the statute of limitations is not tolled.” Ratcliff v. Graether, 697
N.W.2d 119, 125 (Iowa 2005). In light of these pronouncements, we are not
convinced that the Iowa court would apply the continuous representation rule to toll
the running of the statute of limitations here, where the client of an architect, in the
exercise of reasonable diligence, should have discovered its claim before construction
was completed.

        Cedar Rapids Lodge & Suites also relies on Bob McKiness Excavating &
Grading, Inc. v. Morton Bldgs., 507 N.W.2d 405 (Iowa 1993), in which the Iowa
court applied a statute providing that certain actions involving improvements to real
property “shall not be brought more than fifteen years after the date on which
occurred the act or omission of the defendant alleged in the action to have been the
cause of the injury or death.” Iowa Code § 614.1(11). McKiness Excavating held
that a cause of action was extinguished fifteen years from the date when construction
was completed at the buildings in issue. Id. at 409. Drawing on that decision, Cedar
Rapids Lodge & Suites says that the limitations period for its claim against
Lightowler should not expire until five years after the completion of construction at
the hotel. McKiness Excavating, however, applied a statute of repose, which ran from
the “date of the occurrence of the act or omission alleged to have been the cause of
the injury.” Id. This case, by contrast, involves an ordinary statute of limitations.
McKiness Excavating itself indicates that the cause of action accrued when the
plaintiff knew or should have known of potential design defects, whether or not
construction was completed. Id. at 408-09.

                                           -8-
                                  *      *       *

      For the foregoing reasons, we conclude that the claim against Lightowler was
barred by the statute of limitations. The judgment of the district court is affirmed.
Lightowler’s motion to strike pages from the appendix is denied.
                       ______________________________

                                         -9-