On Monday, January 29, 2024, the Colorado Supreme Court issued a decision that clarifies when Colorado’s three-year statute of limitations for breach of contract claims starts to run, holding that “a breach of contract claim accrues at the time the breach is, or in the exercise of reasonable diligence should have been, discovered.”
In City & Cty. of Denver v. Bd. of Cty. Comm'rs of Adams Cty., 2024 CO 5, the Colorado Supreme Court addressed a claim arising under a 1988 contract between Adams County (“Adams”) and the City and County of Denver (“Denver”) that required Denver to install a noise-monitoring system and to use it to calculate noise levels surrounding the soon-to-open Denver International Airport (“DIA”). City & Cnty. Of Denver, at ¶2. Denver instead installed a noise-modeling system, and Adams became aware of the discrepancy in the installed noise system no later than 1995. Id. Adams, however, did not pursue any breach of contract claim against Denver until 2018, after Adams learned that the noise-modeling system was underreporting noise data. Id.
By the time the litigation reached the Colorado Supreme Court, the dispute hinged not on whether there was a breach of contract, nor whether a three-year statute of limitations period applied to Adams’ breach of contract claim, but instead on when Adams’ breach of contract claim began to accrue. Adams argued, and the Court of Appeals agreed, that Adams’ claim did not accrue until 2014 after Adams learned about the underreporting of noise data, as that was when Adams could ascertain the extent of its damages.
The Colorado Supreme Court granted certiorari review to decide “whether the court of appeals erred when it determined that a cause of action for breach of contract does not accrue until the extent of damages is fully ascertainable and there is an ‘incentive to sue.’” Id. at n.2.
The Supreme Court reversed the Court of Appeals and rejected Adams’ argument. The Court focused its analysis on determining the plain and ordinary meaning of § 13-80-108, in which the General Assembly laid out dates of accrual that apply to different types of claims. Id. at ¶21. Looking at subsection (6) of the accrual statute, which addresses breach of contract claims, the Court sided with Denver, which argued that the claim at issue accrued no later than 1995 because Adams was aware by that time that Denver had installed a noise-modeling system, instead of a noise-monitoring system. Id.
Subsection (6) states that “[a] cause of action for breach of any express or implied contract . . . accrue[s] on the date the breach is discovered or should have been discovered by the exercise of reasonable diligence.” § 13-80-108(6) (emphasis added).
The Court reasoned that, “we must presume that the General Assembly knew ‘the legal import of the words it use[d]’ and that its choice of words ‘was a deliberate one calculated to obtain the result dictated by the plain meaning of the words.’” City & Cnty. Of Denver, at ¶37 citing People v. Guenther, 740 P.2d 971, 976 (Colo. 1987).
In further support of its holding, the Supreme Court relied on longstanding case law in Colorado that pointed towards a general rule that a “cause of action for . . . the breach of a contract or duty, accrues immediately upon the happening of . . . the breach, even though the actual damages resulting therefrom may not accrue until sometime afterwards.” (citation omitted).
Thus, the Colorado Supreme Court held that Adams’ complaint was barred by the statute of limitations. In doing so, the Court’s holding reversed in part Bennett Bear Creek Farm Water v. City & Cty. of Denver, 907 P.2d 648 (Colo. App. 1995), on which the Court of Appeals had relied.
Implications:
With this case, the Supreme Court makes its stance clear: the terms “breach” and “damages” are not synonymous. See City & Cnty. Of Denver, at ¶37, ¶44. When it comes to determining the date when a claim accrues for purposes of determining the three-year limitations period, a breach of contract claim accrues as soon as the claimant becomes aware a breach has occurred, not when the breach starts to produce negative impacts and when damages become apparent. If you or your business is in a contract dispute, please contact one of our attorneys for help in determining when a lawsuit must be filed before the claims become barred by the statute of limitations.
Should you have any questions about the content of this legal alert, please contact Mark Champoux or Kehinde Winful.