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CALIFORNIA SANSOME CO. v. UNITED STATES GYPSUM CO.

April 19, 1993

CALIFORNIA SANSOME CO., a limited partnership, and POLK MARKET CO., a limited partnership, Plaintiffs,
v.
UNITED STATES GYPSUM COMPANY, a Delaware corporation, and W.R. GRACE & CO.-CONN., a Connecticut corporation, Defendants.



The opinion of the court was delivered by: EUGENE F. LYNCH

 I. Background

 Plaintiffs filed this tort action against defendants on April 21, 1989, claiming asbestos-related damage in two of their buildings -- 425 California Street and Fox Plaza. Plaintiffs sought upwards of 20 million dollars in compensatory and punitive damages to recoup costs for analysis, removal, and replacement of asbestos-contaminated property, as well as for loss of use of the buildings.

 Defendants' motion for summary judgment was heard in this Court on August 31, 1990. The Court agreed with defendants that plaintiffs' warranty claims were barred by the statute of limitations. However, the Court denied defendants' motion for summary judgment on the remainder of plaintiffs' claims. Although the Court found that defendants had presented a strong case; it concluded that whether plaintiffs were on inquiry notice was a material issue of disputed fact.

 The Court bifurcated the remaining proceedings, setting the statute of limitations issue for trial in February 1991. Following a jury trial, the jury returned a verdict in favor of plaintiffs on the statute of limitations question. During the pendency of further proceedings on the merits, allegations of impropriety on the part of plaintiffs' counsel in his failure to produce during discovery certain non-privileged documents, came to the attention of the Court. After allowing each side an opportunity to brief the implications of this development, the Court on February 4, 1991 ordered a new trial on the statute of limitations issue.

 The statute of limitations question was tried before a jury for a second time in September 1992. Again the jury returned a verdict in favor of plaintiffs. Again defendants filed post-trial motions requesting a new trial or judgment notwithstanding the verdict. After considering the post-trial briefs of all the parties, the Court heard oral argument on the post-trial motions. Without clearly expressing its inclination on defendants' post-trial motions at the hearing, the Court indicated that additional briefing on defendants' motion for judgment notwithstanding the verdict might be helpful, and the court invited each side to submit a single supplemental brief. Having fully considered the respective positions of the parties, including each side's supplemental post-trial briefs, the Court finds that defendants are indeed entitled to judgment notwithstanding the verdict, and the Court will therefore enter judgment in favor of defendants.

 II. California's "Discovery Rule"

 The parties agree that a three-year statute of limitations applies in this case. The ultimate question, upon which the timeliness of plaintiffs' suit depends, is the question of when plaintiffs' cause of action accrued. This question is answered by reference to California's "discovery rule." The "discovery rule," which protects injured plaintiffs who, through no fault of their own, are ignorant of their injuries, provides a category of exceptions in cases where a statutory time bar might otherwise apply.

 The standard for a discovery exception to a statute of limitations bar is well-established under California law. A plaintiff's claims are deemed to have accrued for purposes of the running of the applicable statute of limitations when the plaintiff suspected or should have suspected that it had been injured and that the injury was the result of wrongdoing -- or, in other words, when the plaintiff had notice of information sufficient to put a reasonable person on inquiry. Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103, 1110-11, 1114, 245 Cal. Rptr. 658, 751 P.2d 923 (1988); Gutierrez v. Mofid, 39 Cal. 3d 892, 896-97, 218 Cal. Rptr. 313, 705 P.2d 886 (1985); Miller v. Bechtel Corp., 33 Cal. 3d 868, 873, 875, 191 Cal. Rptr. 619, 663 P.2d 177 (1983).

 The aspect of the "discovery rule" which is the subject of fierce debate with respect to defendants' pending motion involves the special context where a plaintiff becomes aware of facts giving it objective reason to be suspicious, begins its investigation of the facts pertaining to its possible claim, and ultimately discovers the fact and wrongful cause of its injury within three years (the statutory period in this case) of its suspicion, but fails to file suit within that three-year period.

 Although certain decisions of the California appellate courts provide grist for a heated debate, this Court has little difficulty discerning what the California Supreme Court would decide in this case. The limitations period began to run on the plaintiffs at the point of "suspicion," at the point when plaintiffs were first put "on inquiry," despite the fact that additional time may reasonably have been necessary to actually conduct the inquiry and confirm the suspicions. Because plaintiffs were indeed able to confirm their suspicions within three years of the time they were first put "on inquiry," there can be no doubt in this case that their failure to file suit within three years of their suspicion bars them from recovery.

 In Gutierrez and Sanchez -- earlier decisions cited with approval in the California Supreme Court's most recent pronouncement on the "discovery rule" in Jolly -- the California Supreme Court set forth a clear standard to determine when a plaintiff should be deemed to be "on inquiry." A plaintiff is "on inquiry," and the statute of limitations begins to run, when a plaintiff's "'reasonably founded suspicions [have been aroused],' and she has actually 'become alerted to the necessity for investigation and pursuit of her remedies . . . .'" Gutierrez, 39 Cal. 3d at 897 (quoting Sanchez, 18 Cal. 3d at 102).

 The California Supreme Court reaffirmed this statement of the discovery rule in Jolly, its most recent "discovery rule" case. There the California Supreme Court observed:

 Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights. So long as suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.

 Jolly, 44 Cal. 3d at 1111 (emphasis added). The Jolly decision unequivocally evinces the California Supreme Court's mandate that the statute of limitations should begin to run at the time of suspicion when a plaintiff is "on inquiry," not just after the plaintiff has actually confirmed its suspicion through its diligent investigation. This interpretation of the "discovery rule" is most consistent with the policies underlying the rule, one of which is to require plaintiffs to diligently pursue their claims. See id. at 1112. And a contrary ...


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