North Carolina Court Clarifies [1] Plaintiffs Have the Burden of Proving—not Pleading—That Their Claim Was Filed Within the Statute of Repose and [2] the Statute of Repose Commences on Substantial Completion for Each Contractor

In August 2022, the North Carolina Court of Appeals held that claims against an engineer and a subcontractor were improperly dismissed at the pleading stage where the plaintiff did not allege an act or date of substantial completion regarding the statute of repose in its complaint. Gatson County Board of Education v. Shelco, LLC, 877 S.E.2d 316 (N.C. Ct. App. 2022) concerned an action by the Gatson County Board of Education (the “Board”) against Shelco, LLC (the “Contractor”), S&ME, Inc. (the “Engineer”), Boomerang Designs, P.A. (the “Architect”), and Campco Engineering, Inc. (the “Subcontractor”) alleging that a retaining wall constructed as part of a high school construction project was defective. Construction of the retaining wall was completed in 2011, and the Board first became aware of the defects in 2012.

In May 2013, the Board, Contractor, and Architected signed a certificate of substantial completion whereby the Contractor and Architect represented that the entire project – including the retaining wall – was completed. The Engineer and Subcontractor did not sign the certificate. In 2018, the Board, Contractor, Engineer, Architect, and Subcontractor all signed a tolling agreement for the period of March 1, 2019, through September 15, 2020.

In November 2020, the Board commenced the action against all parties alleging that the retaining walls were defective. Each defendant moved to dismiss based on North Carolina’s six-year statute of repose (Rule 12(b)(6)). The trial court granted the motion as to the claims against the Engineer and the Subcontractor, as neither party signed the certificate of substantial completion. The trial court denied the motion as to the claims against the Architect and Contractor, and ruled that the certificate of substantial completion, combined with the tolling agreement, established that the claims against the Contractor and the Architect were filed within the six-year statute of repose. The Board, Architect, and Contractor appealed.

North Carolina’s statute of repose provides, “[n]o action to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property shall be brought more than six years from the later of [1] the specific last act or omission of the defendant giving rise to the cause of action or [2] substantial completion of the improvement . . . or specified area or portion thereof (in accordance with the contract[.]” Gatson, 877 S.E.2d at 319.

While the plaintiff has the ultimate burden of proving that a statute of repose does not defeat a claim, that burden does not apply at the pleading stage.

Unlike a motion for summary judgment which will take account of evidence, a Rule 12(b)(6) motion to dismiss is limited to a review of the allegations of the complaint. Therefore, such motion may succeed, in this context, only where a complaint on its face shows its claims are outside the statute of repose period. 

On appeal in Gatson, the Subcontractor and Engineer argued that the Board’s allegation that the retaining wall was completed in 2011 constituted the act of substantial completion under the statute of repose. The Court of Appeals emphasized that while North Carolina courts have not interpreted “substantial completion” with respect to a project that has several components, the plain language of the statute suggested that when a contractor completes its part of the project, the project is substantially complete as to that contractor. See Lawrence v. General Panel, 822 S.E.2d 800 (S.C. 2019).

Applying that standard to this case, the Court noted that the Board contracted with the Engineer not just to provide services relating to the retaining wall, but “to provide geotechnical engineering service for the Project.” Further, the Board did not allege when the entire project was substantially completed, and the Engineer did not sign the certificate of substantial completion. Thus, the Court reasoned that there is no indication from the face of the complaint that the Engineer was responsible for a specific portion of the project work or that it completed this portion outside the statute of repose.

As to the Subcontractor, the Board alleged that Subcontractor was the civil engineering subcontractor to the Architect, whose services were not limited to the retaining wall. Just as the Engineer, the Subcontractor did not sign the certificate of substantial completion. Thus, there is no definitive allegation indicating that the Subcontractor’s only work on the project was the retaining wall and that it completed this work outside the statute of repose.  This ruling demonstrates why it is important to ensure a dismissal motion has the proper foundation in the complaint upon which the Court can rule. In this instance, without sufficient allegations relating to the date of substantial completion, the motion could not succeed, and a summary judgment notion , at a later time upon submission of evidence, would have been a better course of action.