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Gomez, et al. v. Williams Realty & Construction, Inc.: CONTRACT | REAL PROPERTY - 541.051 repose & new-home, improvement warranties; when accrues

STATE OF MINNESOTA
IN COURT OF APPEALS
Filed November 6, 2007
Affirmed in part, reversed in part, and remanded
Stoneburner, Judge
Hennepin County District Court
File No. 27CV05017589
Jonathan M. Bye, Mark S. Enslin, Lindquist & Vennum, P.L.L.P., 4200 IDS Center, 80
South Eighth Street, Minneapolis, MN 55402 (for appellants)
James M. Hamilton, Oskie, Reuter, Hamilton & Sofio, P.A., Suite 202, 970 Raymond
Avenue, St. Paul, MN 55114 (for respondent Williams Realty)
James M. Bratulich, Adina R. Bergstrom, Bruce P. Candlin & Associates, Suite 603, 380
St. Peter Street, St. Paul, MN 55102-1313; and
Thomas G. Jovanovich, 11 Seventh Avenue North, Box 1433, St. Cloud, MN 56302-
1433 (for respondent Scherer Bros.)
A06-2155
Gail Gomez, et al.,
Appellants,
vs.
David A. Williams Realty & Construction, Inc.,
Defendant and Third Party Plaintiff,
Respondent,
vs.
David Freund, et al.,
Third Party Defendants,
Scherer Bros. Lumber Co.,
Third Party Defendant,
Respondent.
2
Considered and decided by Wright, Presiding Judge; Shumaker, Judge; and
Stoneburner, Judge.
S Y L L A B U S
1. The ten-year statute of repose contained in Minn. Stat. 541.051, subd.
1(a) (2004), applies to actions for breach of the statutory new-home warranties set forth
in Minn. Stat. 327A.02 (2004) and actions for breach of express written warranties on
improvements to real property.
2. For purposes of the statute of repose contained in Minn. Stat. 541.051,
subd. 1(a), a cause of action for breach of statutory new-home warranties or express
written warranties on improvements to real property accrues on discovery of the breach.
O P I N I O N
STONEBURNER, Judge
Appellants challenge the grant of summary judgment to respondents dismissing
new-home warranty claims as barred by the statute of repose contained in Minn. Stat.
541.051, subd. 1(a) (2004). Appellants argue that the district court (1) erred by
considering the statute-of-repose defense asserted for the first time in respondent
builders reply brief; (2) used the wrong event to trigger accrual of their warranty cause
of action; and (3) erroneously concluded that their cause of action accrued more than ten
years after the warranty date. We affirm the district courts consideration and application
of the ten-year statute of repose, and the use of the date of discovery of the breach as the
date on which appellants claims accrued. But because the district court erred in stating
that appellants stipulated to dismissal of some warranty claims, and because there are
3
genuine issues of material fact concerning when appellants knew or should have known
of major construction defects and the builders refusal or inability to honor the warranty
that the home would be free from major construction defects, we reverse the grant of
summary judgment and remand for further proceedings.
FACTS
Appellants Gail and Lupe Gomez (the homeowners) contracted with respondent
David A. Williams Realty & Construction Inc., (the builder) for the construction of a
home which was substantially completed on October 19, 1994. The contract contained
express warranties that (1) during the first ten years of ownership the home shall be free
from major construction defects; (2) all work would be executed in a workmanlike
manner in accordance with the plans and specifications; and (3) the builder would
comply with all applicable health and building ordinances.1 The home was also covered
by statutory warranties that during the one-year period from and after the warranty date
the dwelling shall be free from defects caused by faulty workmanship and defective
materials due to noncompliance with building standards, and that during the ten-year
period from and after the warranty date, the dwelling shall be free from major
construction defects. Minn. Stat. 327A.02, subd. 1(a), (c) (1994).
In June 1995, the homeowners discovered that windows in the home leaked when
it rained. They contacted the builder immediately, and the builder made attempts to fix
1 There is a dispute about whether the contract contains express written warranties, but
for purposes of summary judgment the district court presumed that it did. See Fabio v.
Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (stating that on summary judgment, the
facts are viewed in the light most favorable to the non-moving party).
4
the problem, but it was never fully corrected. According to the homeowners, the extent
of the leaking increased, and the builder made subsequent attempts to remedy the leaking
in 1996 and 1997. The builders last attempt to remedy the problem was made in 1998 or
possibly 1999.
The homeowners wrote to the builders insurance broker about the leaks on June
18, 2004, and received a June 30, 2004, letter from American Family Insurance Company
(the insurer), acknowledging that it insured the builder and had been placed on notice of
the homeowners moisture/water infiltration claim. The insurer requested additional
information, which the homeowners provided by letter dated August 20, 2004.
In August 2004, the homeowners engaged Private Eye, Inc. to perform a moisture
analysis. In a report dated October 4, 2004 (PE report), Private Eye noted that probes
indicated high moisture readings at numerous locations in the wall cavities, the wall
sheathing felt soft when probed at more than 30 locations, and that the sheathing could
not be detected by probes at some half-dozen locations. The PE report recommended that
these areas be opened up for further exploration to determine if there was any structural
damage.
The homeowners forwarded the PE report to the insurer by letter dated October
12, 2004. The insurer replied, stating that because the PE report did not explicitly
indicate structural damage, the homeowners would need to have a structural engineer
substantiate the existence of structural damage to the home. The homeowners then hired
Air Tamarack to conduct a structural analysis of the home. In a report dated February 2,
2005 (AT report), Air Tamarack concluded that the house had serious structural and
5
fungal infestation problems related to the above grade exterior wall construction and rim
joist construction. The report also stated that visual inspection revealed several state
building code violations and poor building practices, which are related to the moisture
penetration concerns in this house.
The homeowners provided the AT report to the insurer. The homeowners sent
written notice to the builder of the problems revealed by the AT report by letter dated
May 18, 2005, and sued the builder on November 8, 2005, for negligence, breach of
express and statutory warranty, breach of contract, and breach of implied warranty. The
builder brought a third-party action for contribution and indemnity against respondent
Scherer Bros. Lumber Co. (the window manufacturer) and third-party defendants, David
Freund Stucco (DFS), Imdieke Builders, and R & R Construction. DFS answered,
affirmatively asserting statute-of-limitations and statute-of-repose defenses. The window
manufacturer also answered, asserting a statute-of-limitations defense and all other
defenses interposed by other third-party defendants.
The builder and the window manufacturer moved for summary judgment on the
homeowners claims based in part on lack of notice required by Minn. Stat. 327A.03(a)
(2004), and the two-year statute of limitations contained in Minn. Stat. 541.051 subd.
1(a) (2004). The window manufacturer also asserted that the builders third-party claims
against it were barred by the ten-year statute of repose.
In response to the summary-judgment motions, the homeowners conceded that the
two-year statute of limitations barred their contract, tort, and implied warranty claims, but
argued that their claims for breach of express and statutory warranties were not barred
6
because they did not discover structural damage to the home until receipt of the PE report
on October 12, 2004. In its reply brief, the builder argued that the PE report did not state
that there was structural damage and that because the AT report, the first confirmation of
structural damage, was issued in February 2005, more than ten years after the warranty
date of October 19, 1994, the ten-year statute of repose contained in Minn. Stat.
541.051, subd. 1(a) barred the claim of breach of the free of major construction
defects warranty.
The homeowners objected to the district courts consideration of the statute-ofrepose
defense raised for the first time in the builders reply brief and requested
additional time to address this defense. The district court denied the request for
additional time. The district court concluded that the ten-year statute of repose contained
in Minn. Stat. 541.051, subd. 1(a) applies to the homeowners claim; that their cause of
action accrued when they knew or should have known of the breach of the free from
major construction defects warranty; and that, as a matter of law, the homeowners did
not learn of the breach of the warranty until the AT report was issued more than ten years
after the warranty date. The district court granted summary judgment to the builder
based on the statute of repose. The district court also dismissed the homeowners
warranty claims based on poor workmanship and building code violations, stating that the
homeowners had conceded those claims were barred under the two-year statute of
limitations. Because none of the homeowners claims against the builder survived
summary judgment, the builders third-party claims against the window manufacturer
were also dismissed. This appeal followed.
7
ISSUES
I. Did the district court abuse its discretion by considering the statute-of-repose
defense first argued by the builder in its reply brief?
II. Does the ten-year statute of repose contained in Minn. Stat. 541.051, subd. 1
(2004), apply to claims for breach of statutory new-home warranties and express written
warranties?
III. When did the homeowners cause of action for breach of and statutory new-home
warranties accrue and express written warranties?
IV. Did the district court err by determining as a matter of law that the homeowners
cause of action for breach of the free from major construction defects warranty accrued
more than ten years after the effective date of the warranty and was therefore barred by
the statute of repose?
V. Did the district court err by stating that the homeowners had conceded that their
claims for breach of the warranties that work would be executed in a workmanlike
manner and that the builder would comply with all applicable ordinances were barred by
the two-year statute of limitations?
ANALYSIS
I. Standard of review
On an appeal from summary judgment we ask two questions: (1) whether there
are any genuine issues of material fact and (2) whether the [district] court[] erred in [its]
application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).
When the district court grants summary judgment based on the application of a statute to
8
undisputed facts, the result is a legal conclusion, reviewed de novo. Lefto v. Hoggsbreath
Enters., Inc., 581 N.W.2d 855, 856 (Minn. 1998) (citing Wallin v. Letourneau, 534
N.W.2d 712, 715 (Minn. 1995)).
II. Applicable statutes
Minn. Stat. 541.051 (2004), provides in relevant part:
Subdivision 1. Limitation; service or construction of
real property; improvements. (a) Except where fraud is
involved, no action by any person in contract, tort, or
otherwise to recover damages for any injury to property . . .
arising out of the defective and unsafe condition of any
improvement to real property . . . shall be brought . . . more
than two years after discovery of the injury . . . nor, in any
event shall such a cause of action accrue more than ten years
after substantial completion of the construction. . . .
(b) For purposes of paragraph (a), a cause of action
accrues upon discovery of the injury . . . .
. . . .
Subdivision 2. Action allowed; limitation.
Notwithstanding the provisions of subdivision 1, in the case
of an action which accrues during the ninth or tenth year after
substantial completion of the construction, an action to
recover damages may be brought within two years after the
date on which the action accrued, but in no event may an
action be brought more than 12 years after substantial
completion of the construction.
. . . .
Subdivision. 4. Applicability. For the purposes of
actions based on breach of the statutory warranties set forth in
section 327A.02, or to actions based on breach of an express
written warranty, such actions shall be brought within two
years of the discovery of the breach. In the case of an action
under section 327A.05, which accrues during the ninth or
tenth year after the warranty date, as defined in section
9
327A.01, subdivision 8, an action may be brought within two
years of the discovery of the breach, but in no event may an
action under section 327A.05 be brought more than 12 years
after the effective warranty date.2
Minnesota law further provides that in every contract for the sale of a dwelling to
be completed, the vendor shall warrant to the vendee that during the ten-year period
from and after the warranty date, the dwelling shall be free from major construction
defects due to noncompliance with building standards. Minn. Stat. 327A.02, subd.
1(c) (2004). Liability of the vendor does not extend to loss or damage not reported by the
owner to the vendor in writing within six months after the owner discovers or should
have discovered the loss or damage. Minn. Stat. 327A.03(a) (2004).
Major construction defect is defined as actual damage to the load-bearing
portion of the dwelling . . . which affects the load-bearing function and which vitally
affects or is imminently likely to vitally affect use of the dwelling . . . for residential
purposes. Minn. Stat. 327A.01, subd. 5 (2004). Warranty date means the date from
and after which the statutory warranties provided in section 327A.02 shall be effective,
and is the earliest of (a) the date of the initial vendees first occupancy of the dwelling; or
(b) [t]he date on which the initial vendee takes legal or equitable title in the dwelling.
Minn. Stat. 327A.01, subd. 8 (2004).
III. Timeliness of statute-of-repose defense
The homeowners first argue that the statute-of-repose defense should not have
been considered by the district court because the builder raised it for the first time in its
2 The parties agree that the effective date of the express and statutory warranties is the
date of substantial completion of the home, October 19, 1994.
10
reply brief, and the district court denied the homeowners request for an opportunity to
address this new argument. The builder agrees that Minn. R. Gen. Pract. 115.03(c) limits
reply memorandums to new legal or factual matters raised by an opposing partys
response to a motion. But the builder argues that the statute-of-repose defense was
raised in its reply brief to address the argument, first raised in the homeowners
memorandum opposing summary judgment, that the homeowners did not know, or have
reason to know, of structural damage to the home until the PE report. The builder also
argues that the homeowners had notice of the statute-of-repose defense because it was
specifically asserted in the answers of DFS and the window manufacturer.
In its reply brief, the builder primarily argued that the homeowners, as a matter of
law, discovered, or should have discovered, the builders breach of the warranty that the
home would be free from major construction defects more than two years before they
sued the builders3 and the homeowners failure to give notice as required by Minn. Stat.
327A.03(a) barred the statutory warranty claims. The builders reply brief addressed
the statute of repose briefly, stating that if [the homeowners] want to claim that they did
not discover structural issues until a professional told them, then they will have to live
with the fact . . . that this advice came more than 10 years after substantial completion of
the home . . . and [their] claims, therefore, are barred by the statute of repose.
3 At oral argument before this court, the builder argued that, as a matter of law, the
homeowners had no reason to know of structural damage before they received the AT
report, despite the homeowners assertion that the PE report put them on notice of such
damage. The builders last minute change of its theory of the case does not change the
record which, as the builder amply argued in summary judgment briefing to the district
court, contains evidence from which a fact-finder could conclude that the homeowners
should have known of structural damage even prior to receipt of the PE report.
11
Because the homeowners asserted for the first time in their memorandum
opposing summary judgment that they neither knew, nor should have known, about
structural damage until they received the PE report, we conclude that the builder
appropriately raised the statute-of-repose defense in its reply brief. The homeowners had
ample opportunity to argue the issue at the summary-judgment hearing. We conclude
that the district court did not abuse its discretion in considering the defense or in denying
additional time to the homeowners to address the issue. Also, because our review of
application of the statute of repose to the facts is de novo, and the homeowners have
thoroughly briefed their response to the defense on appeal, the interests of judicial
economy would not be served by remanding this issue to the district court.
IV. The statute of repose contained in Minn. Stat. 541.051, subd. 1, applies to
claims for breach of express and statutory warranty.
In Koes v. Advanced Design, Inc., 636 N.W.2d 352, 360 (Minn. App. 2001),
review denied (Minn. Feb. 19, 2001), this court concluded that, whether intended or not,
Minn. Stat. 541.051 (2000), did not contain a statute of repose for warranty claims. In
response, the legislature amended subdivision 4 of the statute to remove the language
exempting actions for statutory and express warranties from the application of Minn. Stat.
541.051, and added:
In the case of an action under section 327A.05, which accrues
during the ninth or tenth year after the warranty date, . . . an
action may be brought within two years of the discovery of
the breach, but in no event may an action under section
327A.05 be brought more than 12 years after the effective
warranty date.
12
Minn. Stat. 541.051, subd. 4 (2004). The homeowners argue that because the
legislature did not add language to subdivision 4 stating that the statue of repose
contained in subdivision 1 applies to warranty claims, subdivision 4 constitutes a 12-year
statute of repose for warranty claims, making their claims timely because they were
brought within 12 years of the effective warranty date. We find no merit in this
argument.
The plain language of subdivision 4 permits an action that has accrued within ten
years of the effective warranty date to be brought up to 12 years after the effective
warranty date, but does not provide that a warranty action may accrue more than ten
years from the effective warranty date. Because the language exempting warranty claims
from the statute was removed, Minn. Stat. 541.051, subd. 1(a) now applies to warranty
claims. See Sletto v. Wesley Constr., Inc., 733 N.W.2d 838, 843 (Minn. App. 2007)
(stating that the limitation on accrual in subdivision 1 of section 541.051 now applies to
statutory-warranty claims). The district court properly concluded that the ten-year statute
of repose applies to claims of breach of statutory new-home warranties and express
written warranties.
V. For purposes of the statute of repose in Minn. Stat. 541.051, subd. 1(a), a
cause of action for breach of statutory new-home warranties or express
written warranties accrues on discovery of the breach.
The district court concluded that a cause of action for breach of express or
statutory warranty accrues on discovery of the breach. The homeowners argue that if the
statute of repose contained in Minn. Stat. 541.051, subd. 1(a), applies to breach of
warranty claims then the provision in subdivision 1(b), which states that for purposes of
13
paragraph (a), a cause of action accrues upon discovery of the injury, (emphasis added)
must also apply to breach-of-warranty claims. We disagree.
Minn. Stat. 541.051, subd. 4 and applicable case law establish that for purposes
of actions based on breach of statutory new-home warranties and express written
warranties, it is discovery of the breach that triggers the running of statutes of limitation.
In many cases, a breach of warranty coincides with discovery of a condition contrary to
the warranty (injury), but in the case of warranties that extend to future performance,
there is no breach until the person relying on the warranty discovers, or should have
discovered, that the warranty will not be honored. See Vlahos v. R & I Constr. of
Bloomington, Inc., 676 N.W.2d 672, 678 (Minn. 2004) (holding that the statutory newhome
warranty extends to future performance, and that the applicable statute of
limitations, Minn. Stat. 541.051, subd. 4 (2002), begins to run when the homeowner
discovers, or should have discovered, the builders refusal or inability to ensure the home
is free from major construction defects.).
Despite the supreme courts holding in Vlahos, the homeowners argue that
subdivision 4 does not provide a definition of accrual for warranty claims because it
does not use the word accrue, and that even if a cause of action accrues upon discovery
of the breach for purposes of the statute of limitations in subdivision 4, there is a different
accrual trigger for purposes of the statute of repose. We find no merit in this argument.
Based on Vlahos, we hold that for purposes of the statute of repose, a cause of action for
breach of statutory new-home warranties and express written warranties covering future
performance accrues on discovery of the breach, which occurs when the homeowner
14
discovers, or should have discovered, the builders refusal or inability to ensure the home
is free from major construction defects known to, or that should have been known to, the
homeowner. See id.
VI. The district court erred by holding that, as a matter of law, the homeowners
cause of action for breach of warranties that their home would be free from
major construction defects during the first ten years of occupancy accrued
more than ten years from the warranty date.
To survive summary judgment, a party need not show substantial evidence, only
sufficient evidence to permit reasonable persons to draw different conclusions.
Schroeder v. St. Louis County, 708 N.W.2d 497, 507 (Minn. 2006). Determining when
the homeowners discovered or should have discovered the breach of warranties is a
factual question, inappropriate for resolution on summary judgment. Vlahos, 676
N.W.2d at 676-79.
In Vlahos, the supreme court concluded that the legislature intended to define
major construction defect broadly. Id. In this case, numerous facts in the record
support the builders claims that the homeowners knew or should have known that their
home contained structural defects and that the builder refused or was unable to remedy
those defects long before notice was given to the builder or its insurer and long before
this action was initiated. The homeowners concede that they should have known of
structural defects at least as of the date of the PE report. Nonetheless, the district court
made an explicit finding that the PE report did not give the homeowners reason to know
of structural damage, and made an implicit finding that nothing prior to the PE report put
the homeowners on notice of structural damage that the builder would not cure. Such
15
findings are inappropriate on summary judgment. Although it is not disputed that the AT
report was the first confirmation of structural damage to the home, there is a genuine
issue of material fact concerning whether the homeowners should have been aware that
they had structural damage before or at the time of the PE report, and there appears to be
a genuine issue of material fact about when the homeowners knew or should have known
that the builder would not or could not honor its warranties.
The district court did not reach the issues of whether notice of breach of statutory
warranties was timely or properly given and if not, whether the contract contains express
written warranties. Determination of these factual issues is necessary in order to resolve
whether the homeowners action is viable or is barred by lack of notice, the two-year
statute of limitations, or the ten-year statute of repose.4
VII. The district court erroneously stated that the homeowners conceded that
express and statutory warranties other than the warranty that the home
would be free from structural defects were barred by the statute of
limitations.
Nothing in the record supports the district courts statement that the homeowners
conceded that the statutory warranty contained in Minn. Stat. 327A.02 subd. 1(a)
(2004), warranting that during the one-year period from and after the warranty date the
dwelling shall be free from defects caused by faulty workmanship and defective materials
4 Homeowners suggest that if, as the builder argues, they knew or should have known of
the breach of this warranty prior to August 1, 2004, there would be no statute of repose
applicable to their claim, as exemplified by the Koes decision. Because this issue was not
argued to the district court, we decline to address it here, except to note that such a
finding would have implications for the timeliness of their notice to preserve statutory
warranty claims. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (stating that this
court will generally not consider matters not argued and considered in the district court).
16
due to noncompliance with building standards or the express written warranties of
workmanship and compliance with health and building ordinances are barred by the twoyear
statute of limitations. The homeowners conceded only that their common-law
claims are barred by the two-year statute of limitations. On remand, the district court
must address whether the accrual date on these claims can be determined as a matter of
law or whether there are genuine fact questions that preclude summary judgment on these
claims.
D E C I S I O N
We affirm the district courts ruling that statutory new-home warranty and express
written warranty claims are subject to the ten-year statute of repose contained in Minn.
Stat. 541.051, subd.1(a) (2004), and that such claims accrue at the time a homeowner
knows, or should have known, of major construction defects which a builder refuses or is
unable to correct. Because the district court erred in finding as a matter of law that the
homeowners cause of action on free from major construction defects warranties did
not accrue before expiration of the statute of repose, and erroneously stated that the
homeowners had abandoned their claims for breach of other statutory and express written
warranties, we reverse summary judgment granted to the builder and window
manufacturer and remand for further proceedings.
Affirmed in part, reversed in part, and remanded.
 

 
 
 

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