RENDERED: MARCH 23, 2007; 10:00 A.M. NOT TO BE PUBLISHED Commonwealth of Kentucky Court of Appeals NO. 2006-CA-000194-MR LAWRENCE WILLIAMS APPELLANT v. APPEAL FROM WHITLEY CIRCUIT COURT HONORABLE JERRY D. WINCHETER, JUDGE ACTION NO. 01-CI-00645 RONALD L. BOWLING AND RESIDENTIAL DEVELOPMENT, INC. APPELLEES OPINION VACATING AND REMANDING ** ** ** ** ** BEFORE: COMBS, CHIEF JUDGE; DIXON AND VANMETER, JUDGES. COMBS, CHIEF JUDGE: Lawrence Williams appeals from a summary judgment entered by the Whitley Circuit Court that dismissed his claims against Ronald Bowling and Residential Development, Inc. Williams contends that he properly alleged viable causes of action against the builder of his home based upon numerous construction defects. He claims that he is entitled to proceed directly against the builder notwithstanding his previous settlement with a home warranty company. Having closely
examined the terms of the express warranty, we conclude that Williams may proceed against the builder despite the compromise of his claims against the home warranty s administrator and insurer. Hence, we vacate and remand for further proceedings. In the summer of 1997, Williams entered into a contract with Ronald Bowling to purchase a newly constructed house at 122 S. Earl Street in Corbin. The purchase price was sixty-five thousand dollars ($65,000). Williams and his family moved into the house in early July 1997, and the closing was held nearly three months later on September 30, 1997. According to Williams, within six months after they moved in, the family began to notice structural problems with the house. Cracks began to develop around the walls and ceilings; doors would no longer open and close properly; the carport began to separate from the house; and the floors began to squeak and bow. In October 2001, the kitchen caught fire as the result of the operation of a countertop can-opener. It was at that point that Williams said that he became aware of the serious electrical and mechanical defects in the house. On November 13, 2001, Williams filed a complaint against Ronald Bowling and alleged that the house had not been constructed in a workmanlike manner; that it failed to conform to applicable building codes; and that it was otherwise defective and uninhabitable. He attached a copy of a field inspection report prepared by an electrical inspector indicating that the electrical outlets had been improperly grounded. Williams sought to recover both compensatory and punitive damages. - 2 -
In his answer, Bowling denied the material allegations contained in Williams s complaint. In addition, he referred to the provisions of an express, ten-year limited home warranty provided to Williams during the closing by Western Pacific Mutual Insurance Company (Western Pacific Mutual) and administered by Residential Warranty Corporation (RWC). Bowling claimed that Williams had accepted the warranty in lieu of all other warranties, oral agreements, and representations of the builder. He alleged that the claims asserted against him as the homebuilder were barred pursuant to specific provisions of the warranty. Discovery followed, and in December 2002, Williams filed a Warranty Coverage Report prepared by RWC. According to the report, a fact-finding inspection of the house undertaken by RWC indicated that the alleged defects did not satisfy the warranty s criteria for major structural defects for which coverage was provided. Williams was advised that if he did not agree with RWC s determination, he would be required to initiate binding arbitration proceedings within thirty days. On October 24, 2003, Bowling filed a motion for summary judgment contending that there were no genuine issues of material fact concerning his liability. He supported the motion with several affidavits, which represented that the house had been built in a workmanlike manner and that it conformed to municipal code requirements. In his own affidavit, Bowling stated that he had received absolutely no notice from Williams regarding any alleged major structural defects until the complaint was filed against him nearly four years after the closing. Bowling also reiterated that a - 3 -
ten-year new home warranty had been offered and accepted by Williams at the time of closing. The warranty was offered in lieu of all other warranties, oral agreements, or representations made by the builder. The sworn affidavit of Sandra Sweigert, an employee of RWC, indicated that Williams s home was still covered by that warranty. In his verified response to the motion for summary judgment, Williams stated that Ralph Hoskins 1, the closing attorney, indicated to him at the closing that the express warranty was required and that it provided unlimited coverage for Bowling s workmanship. Williams also disputed the sworn statement of a certified electrical inspector, who indicated that the home had been built to comply with applicable building codes. Williams reiterated that Bowling had used unsuitable building materials in the construction; that the heating and air conditioning had been improperly installed; that the foundation had not been properly anchored to the house; that the floor joists had not been properly supported or repaired; that the insulation had been improperly installed; and that the roof was now buckling, the sub-flooring separating, and a block wall cracking. On February 10, 2004, Williams filed a motion seeking leave to amend his complaint to add additional causes of action against Ronald Bowling and to add Residential Development, Inc., (a building company wholly-owned and operated by Ronald Bowling), and RWC as defendants to the action. The motion was granted. Williams alleged that Ronald Bowling falsely represented to him that the home warranty administered by RWC gave him additional protection against construction 1 In February 2004, Williams filed a motion to disqualify Hoskins from his representation of Ronald Bowling. - 4 -
defects and that it was to his (Williams s) advantage to accept it. Williams sought a declaration that RWC s warranty was unenforceable on grounds of fraud and unconscionability in order to enable him to proceed directly against Bowling. RWC S motion to dismiss promptly followed but was denied by the trial court. On October 6, 2004, Williams filed a motion seeking leave to file a second amended complaint and to add Western Pacific Mutual Insurance Company as another party defendant. Williams s allegations against Western Pacific Mutual mirrored those that he had made against RWC. His motion was granted, and the insurance company filed an answer. On November 30, 2005, Williams filed a motion pursuant to the provisions of Kentucky Rules of Civil Procedure (CR) 41.01. Williams requested a voluntary dismissal of the action with respect to Western Pacific Mutual, RWC, and Residential Development, Inc. Bowling then moved to dismiss the action in its entirety since the basis of Williams s motion for partial dismissal was his settlement with RWC and Western Pacific Mutual. The trial court granted the motions of each party with the result that the action was dismissed in toto. On December 9, 2005, Williams filed an extensive verified motion to alter, amend, or vacate, reiterating his claim that Bowling had wrongfully induced him to accept the home warranty. He explained that he had accepted sixteen thousand dollars from RWC and Western Pacific Mutual in settlement of the specific claims made only against them; he requested that the dismissal of the action against Bowling be vacated. - 5 -
In response to the motion, Bowling represented to the court that he had not induced Williams to accept the home warranty. He indicated that Williams s purchase money financing had been subsidized by the Kentucky Housing Corporation and that the mortgage broker s written closing instructions indicated that a 2-10 home warranty had to be secured and signed by all parties in order to complete the closing. The provisions of the express warranty accepted by Williams required the builder to warrant for one year that the home was free of defects due to any nonconformity with the standards specifically enumerated in the agreement. The builder was required to warrant the property against major structural defects (as the phrase is defined by the agreement) for a period of two years following the closing. For the next eight years, Western Pacific Mutual alone was to warrant the property against major structural defects. The warranty agreement required an aggrieved homeowner to send a [written] notice to the Builder which is clear and describes the defect in reasonable detail... no later than seven (7) calendar days following the expiration of the applicable warranty period. Bowling reminded the court that the purchase transaction was completed on September 30, 1997. While Bowling had responded to numerous call-backs to correct alleged deficiencies, Williams had failed to provide written notice of any alleged defect before the action was filed in November 2001. Bowling also emphasized that the agreement provided that any unresolved disputes with the builder or with Western Pacific Mutual be submitted to binding arbitration. - 6 -
By its order entered January 11, 2006, the trial court denied Williams s motion to alter, amend, or vacate the dismissal. This appeal followed. The standard of review on appeal of a summary judgment is whether the trial court correctly determined that there were no genuine issues of material fact and that the moving party was entitled to judgment as a matter of law. CR 56.03. We conclude that Bowling was not entitled to judgment as a matter of law in this case. Therefore, summary judgment was erroneously granted. On appeal, Williams argues that the trial court erred by dismissing the action against Bowling on the basis of his settlement with RWC and Western Pacific Mutual. Williams contends that Bowling was never a party to the express warranty agreement and that he cannot use its provisions to escape his own liability as the builderseller. Since we are persuaded by this argument, we need not address Williams's two arguments in the alternative concerning the nature of the express warranty. In her deposition, Sandra Sweigert, enrollments manager for RWC, explained that her company issued and administered warranties on new houses directly through its builder-members. She indicated that Residential Development, Inc., had applied for RWC membership and after screening had been enrolled in the program as a builder-member in September 1997. By virtue of its membership with RWC, Residential Development, Inc., was in a position to purchase a home warranty policy with respect to the property at 122 South Earl Street in Corbin. - 7 -
Prior to closing, Residential Development, Inc., submitted a notification of enrollment form with respect to the specific property. RWC then provided the buildermember with an application for warranty form to be completed and submitted following the closing. After the application for warranty was executed by Williams and Residential Development, Inc., and RWC received the premium payment from its builder-member, the express warranty was duly issued. In his deposition, Bowling testified that he worked as project manager for Residential Development, Inc., a company that he owned and operated. As of November 2005, Bowling had managed the construction of fifty-four residential projects and several commercial projects. However, Bowling adamantly denied that Residential Development, Inc., built the house at South Earl Street. Bowling claimed that he and his wife had purchased the lot and had built the house entirely on their own and not in conjunction with the company. He stated as follows: Deposition at 10. I was not acting as the general contractor when I built that house. I was doing it on my own as an investment property, potentially rental property. So if I needed a framing contractor, I would contact the framing contractor. If I needed a painter, I would contact the painter. I wouldn t I was not going through a project manager. I was doing it myself. As the house neared completion, Bowling stated that he was approached by a realtor representing a potential buyer. Bowling and Williams entered into a sale- - 8 -
purchase agreement. The Williamses moved in, and the property at South Earl Street was eventually conveyed to Lawrence Williams by Bowling and his wife. The pre-trial practice in this case was both complicated and protracted. Yet, it is clear from the record that Bowling alone was the builder-seller of the home and that he was a legal stranger to the express warranty agreement. In Crawley v. Terhune, 437 S.W.2d 743 (Ky. 1969), the Supreme Court of Kentucky adopted as a matter of common law the principle that there is an implied warranty of habitability to the buyer of a new home from the builder that the structural features were constructed in a workmanlike manner using suitable materials. While the amount of Willliams s recovery might arguably be affected by his receipt of settlement proceeds from other defendants in this case, there is no question that Bowling remains potentially liable under theories of negligent construction and a breach of the implied warranty of habitability (and, perhaps, other contractual and statutory duties). The record before us presents sufficient material questions of fact concerning Bowling s alleged use of improper building materials; his breach of an express agreement to repair enumerated defects; Williams s discovery of alleged mechanical and electrical irregularities; and contradictory evidence concerning the home s compliance with the building code. There are multiple issues of material facts in dispute to withstand and thus to preclude entry of summary judgment. Accordingly, the judgment of the Whitley Circuit Court is vacated, and this case is remanded for further proceedings. - 9 -
ALL CONCUR. BRIEFS FOR APPELLANT: Marcia A. Smith Corbin, Kentucky BRIEF FOR APPELLEE: Ralph W. Hoskins Corbin, Kentucky - 10 -