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declining to grant Defendant's motion to dismiss after concluding that, although the Complaint did "not provide any specificity as to Plaintiffs' knowledge extent, or time of knowledge, or legitimacy if the absence of knowledge," the claim had been raised and the factual record should be developed
Summary of this case from Van Lake v. Sorin CRM USA, Inc.Opinion
C.A. No. 06C-10-075 (RBY).
Submitted: August 29, 2007.
Decided: November 21, 2007.
Francis J. Murphy, Esq., Murphy Landon, Wilmington, Delaware for Plaintiffs.
Linda Richenderfer, Esq. and Chad J. Toms, Esq., Bifferato, Gentilotti, LLC, Wilmington, Delaware for Defendants.
Upon Consideration of Defendants' Motion to Dismiss DENIED.
OPINION AND ORDER
This case, in its present posture at the dismissal and/or summary judgment level, involves a number of issues, each frequently crossing paths with the others. These include: the presence, absence, meaning or application of consideration; the existence, effect, breadth or application of warranties; the application of limitation statutes.
Completed discovery may or may not shed any further light on each of these topics. At this juncture, however, each one is rife with factual issues, subject to determination by a fact finder rather than disposal as a matter of law. Accordingly, all motions are DENIED, subject to later re-filing if and when all facts relative to a determination of each or all become established.
FACTS
On December 8, 1999, the Plaintiffs, Ellen and Donald Reid, ("Plaintiffs") entered into an agreement ("the Sales Agreement") with Thompson Homes At Centreville and Thompson Homes, Inc. ("Defendants"), homebuilders, for the construction of a home in Centreville, Delaware, with a total purchase price of $1,137,370. Settlement on the home occurred on August 31, 2000. At some point between settlement and the institution of this action, the Plaintiffs began noticing problems with the home, which consisted of mold and water damage. The Plaintiffs notified the Defendants of the problems, but the Defendants took no action. The Plaintiffs hired experts to investigate the problems and repair any defects. Defects were found and repair was undertaken. The Plaintiffs then filed this action on October 9, 2006.
PARTIES' CONTENTIONS
The Defendants argue that dismissal of the Plaintiffs's entire Complaint is appropriate on four grounds: (1) that the Plaintiffs' claims for breach of contract, breach of express warranty and breach of implied warranty are barred by the applicable statute of limitations, 10 Del. C. § 8106; (2) that the express and implied warranties were effectively disclaimed and that the express warranties have expired; (3) that the Plaintiffs agreed to an exclusive remedy, the remedy contained within the 2-10 Home Buyers Warranty (" 2-10 HBW"), when they signed the Application for Home Warranty; and (4) that any claim not dismissed for another reason must be submitted to arbitration in accordance with the parties' agreement to arbitrate.The Plaintiffs dispute each of the Defendants' arguments. First, the Plaintiffs assert that while the action is subject to the three year statute of limitations contained within 10 Del. C. § 8106, the time of discovery rule applies to the contract and warranty claims. The Plaintiffs assert that because the defects were not discovered "until recently" the breach of contract and warranty counts of the Complaint are not time barred.
Second, the Plaintiffs contend that: (1) Paragraph 8 of the Sales Agreement, which the Defendants assert disclaims express and implied warranties, is in contradiction with the New Construction Addendum, which specifically provides for an express warranty; (2) the implied warranty of good quality and workmanship cannot be disclaimed; and (3) that the express warranty provided by the Defendants has not expired because of the time of discovery rule.
Third, the Plaintiffs maintain that the Sales Agreement does not contain any exclusive remedy provision by which they give up their rights to remedies for breach of contract, breach of express warranty, breach of implied warranty, or negligence because the Application for Home Warranty is not part of the Sales Agreement.
The Plaintiffs dispute the existence of an arbitration clause. However, the Plaintiffs argue that, if an arbitration clause exists, it is contained only within the 2-10 HBW, and would apply only to claims arising under the 2-10 HBW. The Plaintiffs urge that since their claims do not arise under the 2-10 HBW none of them is subject to the arbitration clause.
The Defendants respond by asserting that: (1) the Plaintiffs failed to plead sufficiently the time of discovery rule in the Complaint, as there is no indication as to when the defects were discovered; (2) that all breach of warranty claims are limited by the 2-10 HBW, and that the implied warranty of good quality and workmanship can be and was disclaimed; (3) that the Plaintiffs agreed to an exclusive remedy; and (4) that the arbitration clause is designed to be all-encompassing, and must be enforced to its limits.
Finally, the issue of the presence, meaning and application of consideration arose.
CONSIDERATION
The question of consideration is viewed very differently by each party because each asserts the purchase of a different type of item. The Plaintiffs claim to have intended to purchase additional warranty coverage. Defendants view the matter as a purchase for "different" protection, arguably — under the present state of things — resulting in Plaintiffs' having paid for fewer enforcement rights than they originally had.
The Defendants argue that Plaintiffs bargained for different warrant y c overage. This idea is based on the theory that Plaintiffs benefit from having warranty coverage through a company instead of solely the builder, creating a lessened risk of financial inability to perform warranty obligations, even though the new warranty severely restricts the claims and mechanisms for dispute resolution. The limitations period is also extended for certain types of claims. The Defendants claim to have fulfilled their obligations simply by providing the warranty to the Plaintiffs. Plaintiffs' position is that such an interpretation would mean that they paid about $2,000 to be put in a poorer position, with Defendant's having given nothing in exchange. Further, this matter intermingles with concepts concerning the existence and effect of the "sophisticated purchaser" issue, which all parties agree is not ripe for determination.
This was the explanation given for the purchase of additional warranties in Country Life Homes, Inc v. Shaffer, C.A. No. 2288-S, Noble, V.C., 2007 Del. Ch. LEXIS 23, at *3.
Factual determinations, the province of a jury, are manifest here.
The Plaintiffs filed a four count Complaint against the Defendants for: (1) breach of contract, (2) breach of express warranty, (3) breach of implied warranty, and (4) negligence. The Defendants seek dismissal of the entire action.
THE SALES AGREEMENT
The Sales Agreement, the contract between the Parties, is central to the issues underlying the Defendants' Motion. Therefore, a review of the pertinent portions is necessary.
Paragraph 3 of the Sales Agreement references ten other documents, which together formed the basis for the contract between the parties. These other documents included: (1) New Construction Addendum; (2) Specifications; (3) Proposed Site Plan; (4) Elevations; (5) Floor Plan; (6) Initial Maintenance Corporation; (7) Record Major Subdivision Plan-Centreville Reserve; (8) Declaration of Restrictions for Centreville Reserve; (9) Sample Limited Warranty Administered by Residential Warranty; and (10) Corporation Escrow Law.
Paragraph 8 contains information regarding what warranties are given by the Defendants. The Paragraph states:
"Buyer(s) has been provided by the Seller, a member of HOME BUYERS WARRANTY ("HBW"), a sample limited warranty document containing the terms and conditions of a Limited Warranty to be provided by Seller to Buyer(s) at closing, which Buyer(s) has read and understands ("Member's Warranty"). The Member's Warranty is intended to be administered by HBW and includes the provision that requires all disputes that arise under the Limited Warranty to be submitted to binding arbitration. Validation by HBW of the Limited Warranty is not guaranteed by HBW, but is conditioned on the satisfactory completion of all required inspections, upon Seller's compliance with all of HBW's enrollment procedures, and upon Seller remaining a member in good standing of the HBW Limited Warranty Program. Buyer(s) understands and agrees that, if the above Limited Warranty is validated by HBW, it is provided to Seller in lieu of all other warranties, oral agreements or representations and SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO QUALITY, FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, HABITABILITY OR OTHERWISE, EXCEPT AS IS EXPRESSLY SET FORTH IN THE LIMITED WARRANTY PROGRAM. IN ANY EVENT, SELLER SHALL NOT BE LIABLE FOR ANY PERSONAL INJURY OR OTHER CONSEQUENTIAL OR SECONDARY DAMAGES AND/OR LOSSES WHICH MAY ARISE FROM OR OUT OF ANY AND ALL DEFECTS."
The Defendants allege that the Plaintiffs received a copy of the Limited Warranty, referred to here as the 2-10 HBW, at closing.
The New Construction Addendum
This document was incorporated by reference into the Sales Agreement pursuant to Paragraph 3 of the Sales Agreement, and was executed on the same day as the Sales Agreement. This document provides certain representations and warranties, including the following warranty for workmanship:
"Workmanship All work shall be done in a manner consistent with prevailing, accepted standards for residential construction, and in compliance with the building products manufacturer's installation recommendations. In addition, all work shall be done in accordance with applicable New Castle County Building Codes, Regulations and Laws. The Builder warrants to the Buyer that all building materials, equipment and appliances incorporated in the project will be new unless otherwise specified. The Builder does hereby warrant the work performed under the scope of the agreed upon drawings, specifications, and change orders to be free from all defective workmanship and/or materials, for one (1) year from the date of completion. All warranties by the Builder expire one (1) year after date of closing. Said Builder's Warranty is non-transferable and terminates when the dwelling is resold or is no longer occupied by the Buyer, whichever comes first. Furthermore, the builder shall enroll the completed dwelling in a Ten Year Insured Builders Warranty Program (as administered by the Home Buyers Warranty Corporation or equal). Buyer has been provided with information as to the limited warranty agreement, claims procedures, and approved standards of the Insured Builders Warranty."
The Application for Home Warranty
This document was signed at closing. It contains a clause labeled "Home Buyers Acknowledgment and Consent," which states, in pertinent part: "You further understand that when the warranty is issued on your new home, it is an Express Limited Warranty and that all claims and liabilities are limited to and by the terms and conditions of the Express Limited Warranty. . . ." Neither this document nor any provision of the Sales Agreement incorporates the document or the clause into the Sales Agreement.
The 2-10 HBW
The 2-10 HBW, which was given to the Plaintiffs at closing, provides the Plaintiffs with a one-year express limited warranty that the home would be free from defects in materials and workmanship; a two-year express limited warranty that the home would be free from defects in the electrical, plumbing and mechanical systems; and a ten-year express limited warranty against structural defects. It also contains an arbitration clause, which states, in pertinent part:
"ARBITRATION Any and all claims, disputes and controversies arising under or relating to this Agreement, including without limitation, any claim of breach of contract, negligent or intentional misrepresentation or nondisclosure in the inducement, execution or performance of any contract, and breach of any alleged duty of good faith and fair dealing, shall be submitted to arbitration. . . ."
STANDARD OF REVIEW
When reviewing a motion to dismiss, the Court "will consider all well-pleaded facts in the complaint and accept them as true." The motion should be granted "only where it appears with reasonable certainty that [the plaintiff] would be unable to prevail on any set of facts inferable from the complaint." Conversely, the motion will be denied "if the plaintiff may recover under any conceivable set of circumstances susceptible to proof under the complaint." In viewing the facts, the Court must draw "all reasonable inferences in favor of the non-movant." The Court may consider documents that are "integral to the plaintiff's claim and incorporated in the complaint" in deciding a motion to dismiss.DISCUSSION
The two threshold questions presented to this Court by the Defendants' Motion are: (1) whether the 2-10 HBW express warranty is the exclusive remedy, barring all other claims by the Plaintiffs and (2) whether there is an agreement to arbitrate and, if so, which, if any, of the Plaintiffs' claims are arbitral. If the Court finds that there is no exclusive remedy clause and that there is a valid agreement to arbitrate, but it is limited only to the breach of express warranty claim, then the Court must answer two additional questions: (3) whether the implied warranty of good quality and workmanship can be disclaimed and, if so, whether it was disclaimed and (4) whether the Plaintiffs have pled the facts necessary to toll the statute of limitations through use of the time of discovery rule.
1. Whether the 2-10 HBW Express Warranty is the Exclusive Remedy
The Defendants assert that the Application for Home Warranty transforms the 2-10 HBW express warranty into an exclusive remedy for all claims raised by the Plaintiffs in their Complaint, including their common law claims of breach of contract, breach of implied warranty, and negligence. The Court will assume, arguendo, that the Application for Home Warranty, which does not appear to be part of the Sales Agreement or to be incorporated by reference into the Sales Agreement, is, nevertheless, a valid agreement. Therefore, the Court will focus its inquiry on whether the Application for Home Warranty transformed the 2-10 HBW express warranty into an exclusive remedy.
In regards to exclusive remedy clauses, our courts have refused to construe a contract as taking away a common law remedy unless that result is imperatively required. For example, the Supreme Court has held that, even if a contract specifies a remedy for breach of that contract, a contractual remedy cannot be read as exclusive of all other remedies if it lacks the requisite expression of exclusivity. Additionally, the Supre me Court has held that the phrase "all duties or liabilities," contained within a disclaimer of all other express or implied warranties provided by a seller cannot be read as transforming the express warranty actually provided by the seller into the exclusive remedy for negligence claims.
Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 176 (Del. 2002).
Id.
Pan Am. World Airways, Inc. v. United Aircraft Corp., 163 A.2d 582, 586-588 (Del. 1960) (Even more telling, the clause at issue stated that the express warranty was being given "in lieu of . . . all duties and liabilities of the Seller.").
At present, it is open to jury determination whether or not the language in the Application for Home Warranty imperatively requires that the 2-10 HBW express warranty is the exclusive remedy. The provision states that the warranty being given is "an Express Limited Warranty and that all claims and liabilities are limited to and by the terms and conditions of the Express Warranty as stated in the Home Buyers Warranty Booklet." From a plain reading of the provision, it does not appear that the exclusion of the Plaintiffs' common law remedies is imperatively required. For example, the provision does not state that the express warranty is being given in lieu of other remedies nor that the express warranty is to serve as the exclusive remedy. Furthermore, it is not clear here whether the "claims and liabilities" mentioned by the provision are those claims of the Plaintiffs' and liabilities of the Defendants' arising from the terms of the express warranty or are meant to refer to the Plaintiffs' common law claims and the Defendants' common law liabilities.
The Defendants seem to assert that the mere provision for an express one-year warranty on defects in materials and workmanship is, in and of itself, sufficient to create an exclusive remedy. For this proposition they cite Smith v. Berwin Builders, Inc. In that case, the Superior Court dealt with an express warranty provision similar to the one at issue here, however the circumstances were not similar. While in Smith the plaintiff/homebuyer contracted with the defendant/homebuilder for the construction of a warehouse for use by the plaintiff's corporation, in the case sub judice the Plaintiffs contracted with the Defendants for construction of a dwelling. In Smith, the court noted that summary judgment in favor of the defendant was inappropriate because the language of the disclaimer was ambiguous. The court also stated that the plaintiff's argument that the express warranty amounted to an additional warranty rather than an exclusive remedy was reasonable given that there is evidence that, when such an express warranty provision appears in a contract for a dwelling, this interpretation is the correct one. In the case here, the Sales Agreement contract was for a dwelling. Based on the language in Smith regarding such a situation, it seems that the Smith Court's suggestion that an express warranty is an additional warranty, rather than an exclusive remedy, has more force than the argument advanced by the Defendants in light of other Delaware case law discussed previously and given that this Contract was for a dwelling.
287 A.2d 693 (Del.Super.Ct. 972).
In Smith, the provision states: "The Contractor shall be responsible for any faulty materials or workmanship, shall remedy any defects and pay for any damages resulting therefrom which shall appear within a period of one year from the date of payment."
Id. at 694.
Id. at 695.
Therefore, the Defendants' argument that the express warranty provided in this case is necessarily the exclusive remedy is not supported by case law. Thus, the Court concludes that the Application for Home Warranty does not, as a matter of law, transform the 2-10 HBW express warranty into an exclusive remedy. This conclusion is buttressed by the contra preferentem principle of construction, which states that ambiguities in a contract should be construed against the drafter.
Twin City Fire Ins. Co. v. Delaware Racing Ass'n, 840 A.2d 624, 630 (Del. 2003).
All of this requires considerably more factual definition. Perhaps the point will come when judgment as a matter of law is possible. That point has not presently arrived.
2. Whether There is an Agreement to Arbitrate and, If So, Which, If Any, of the Plaintiffs' Claims are Arbitral
The Defendants next argue that all of the Plaintiffs' claims must be submitted to arbitration in accordance with the arbitration agreement contained within the 2-10 HBW.
According to Zeleny v. Thompson Homes at Centreville, Inc.: "The question of whether parties have contractually agreed to arbitrate is generally one to be decided by the court. `The threshold question regarding the validity of an arbitration agreement is known as substantive arbitration.' `In determining arbitrability, the courts are confined to ascertaining whether the dispute is one that, on its face, falls within the arbitration clause of the contract.' Any doubt as to arbitrability should be resolved in favor of arbitration. However, the court will not compel a party to arbitrate, unless there is a clear expression of such an intent. An agreement to arbitrate is a contractual issue. Therefore, a court must begin its analysis with the language of the contract." That being said, the question at present is whether such a determination is possible at this stage of the case.
Zeleny v. Thompson Homes at Centreville, Inc., 2006 WL 2382829, at * 2 (Del.Super.) (citations omitted).
Here, the language of the contract affecting arbitration is found within the 2-10 HBW. The existence of this clause is directly referred to by Paragraph 8 of the Sales Agreement. That paragraph states that the sample limited warranty, of which the Plaintiffs received a copy when the Sales Agreement was signed, contains the same terms and conditions as the 2-10 HBW; that the Plaintiffs are supposed to receive a copy of at closing; and that included within those terms and conditions is an arbitration agreement. The language of the Sales Agreement and the 2-10 HBW, which the Sales Agreement explicitly incorporates, created an agreement to arbitrate.
The Plaintiffs contend that if the arbitration language in the 2-10 HBW is found to be an agreement to arbitrate, its claims are still not subject to arbitration because they are based on the New Construction Addendum and not the 2-10 HBW. If the arbitration provisions exist as Defendants assert, that argument would fail because the disclaimer language contained within Paragraph 8 of the Sales Agreement mandates that after the sample warranty is accepted no claim can arise under the New Construction Addendum. As stated above, the paragraph states that if the sample limited warranty is validated, as it was since it was provided to the Plaintiffs at closing, then the warranties contained within the 2-10 HBW are provided by the Defendants "in lieu of all other warranties, oral agreements or representations." By this language, when the sample limited warranty was validated and the 2-10 HBW was issued, the one-year warranty against defects in materials and workmanship contained within the New Construction Addendum was superseded by the warranties contained within the 2-10 HBW, which expressly provided for resolution of disputes by arbitration.
The existence and application of those provisions, however, are not at this stage subject to determination as a matter of law. Moreover, the scope of any such agreement is an open issue. The Defendants contend that the scope of the clause covers all of the Plaintiffs' claims. The language of the arbitral clause in this case states that "[a]ny and all claims, disputes and controversies arising under or relating to this Agreement . . . shall be submitted to arbitration. . . ." This language is not as broad as the language at issue in the arbitration agreement in Zeleny v. Thompson Homes at Centreville, Inc., to which the Defendants have referred the Court. The Zeleny Court found the arbitration agreement was "designed to be all-en compassing," and the Court held that it "achieves that objective," ordering all of the plaintiff's claims to arbitration.
Id.
Id. at *4.
The language of the arbitration agreement in Zeleny is much broader than the language at issue in the case sub judice, because the language in the 2-10 HBW before this Court limits the scope of the claims to those arising under or related to the warranty. It also does no t include those claims arising from or related to "the subject Home, to any defect in or to the subject Home or the real property on which the subject Home is situated, or the sale of the subject Home by the Builder."
For various reasons described, ths matter is not presently appropriate for summary disposition.
3. Whether the Implied Warranty of Good Quality and Workmanship Can Be Disclaimed and was Properly Disclaimed
The Defendants argue that the Plaintiffs' claim for breach of the implied warranty of good quality and workmanship must be dismissed because it has been disclaimed. The Plaintiffs contend that Council of Unit Owners v. Shore Building Supply, Inc. stands for the proposition that the implied warranty of good quality and workmanship is a warranty that arises by operation of law and cannot be disclaimed. While Delaware has long recognized the existence of such an implied warranty, it has also been held, in the case cited by the Plaintiffs for the contrary view, that a developer can negate the implied warranty in a standard form contract which he supplies by including clear, unambiguous language in the contract specifically excluding the implied warranty.
The correct citation for the case cited by the Plaintiffs is: Council of Unit Owners of Breakwater House Condominium v. Simpler, 1993 WL 81285, at *1 (Del.Super.).
Bye v. George W. McCaulley Son Co., 76 A. 621, 622 (Del.Super.Ct. 1908) (An implied warranty of good quality and workmanship exists in Delaware.).
Council of Unit Owners of Breakwater House Condominium v. Simpler, 1993 WL 81285, *5 (Del.Super.)("[A] developer cannot negate the implied warranty in a standard form contract which he supplies except by including clear, unambiguous language in the contract specifically excluding the implied warranty.").
Since the implied warranty can be disclaimed, the question remains as to whether it was properly disclaimed here. Paragraph 8 of the Sales Agreement states: "SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO QUALITY, FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, HABITABILITY OR OTHERWISE, EXCEPT AS IS EXPRESSLY SET FORTH IN THE LIMITED WARRANTY PROGRAM." This is clear, unambiguous language. It specifically references the disclaimer of implied warranties and the specific implied warranty the Plaintiffs seek recourse to, the implied warranty of good quality and workmanship. This disclaimer, then, appears to meet the requirement that it be reasonably expected that a person's attention be called to the language, since it is printed in large letters and underlined so as to set it apart from the rest of the paragraph.
Norman Gershman's Things To Wear, Inc. v. Mercedes-Benz of North America, Inc., 558 A.2d 1066, 1069 (Del.Super.Ct. 1989).
At this point, however, given the Court's present understanding of the interface of this issue with the above discussed issue of consideration, this matter, too, is premature for resolution.
4. Whether the Plaintiffs Pled the Facts Necessary to Toll the Statute of Limitations Through Use of the Time of Discovery Rule
Actions for breach of contract are governed by a three year statute of limitations. The statute begins to run at the time of injury, here that is closing, unless tolled. The time of discovery rule, also known as the doctrine of inherently unknowable injuries, acts to toll the statute while the discovery of the existence of a cause of action is a practical impossibility. "For the limitations period to be tolled under this doctrine, there must have been no observable or objective factors to put a party on notice of an injury, and plaintiffs must show that they were blamelessly ignorant of the act or omission and the injury." The party asserting that tolling applies bears the burden of pleading specific facts to demonstrate that the statute of limitations is, in fact, tolled. "Significantly, if the limitations period is tolled under any of these theories, it is tolled only until the plaintiff discovers (or exercising reasonable diligence should have discovered) his injury. Thus, the limitations period begins to run when the plaintiff is objectively aware of the facts giving rise to the wrong, i.e., on inquiry notice."
10 Del. C. § 8106.
Ruger v. Funk, 1996 WL 110072, at *2 (Del.Super.).
In re Dean Witter Partnership Litigation, 1998 WL 442456, at *5 (Del.Ch.) (citing Ruger v. Funk, 1996 WL 110072, at *2).
Id. See also Ruger v. Funk, 1996 WL 110072, at *2.
In re Dean Witter Partnership Litigation, 1998 WL 442456, at *6 (emphasis in the original; citations omitted).
Id.
Here, the Plaintiffs' contend the time of discovery rule applies.
At this time, the Complaint, as Defendants assert, does not provide any specificity as to Plaintiffs' knowledge extent, or time of knowledge, or legitimacy of the absence of knowledge, and so forth. Nevertheless, the claim has been raised.
Hence, the factual matters should be developed. Perhaps this issue will be subject to determination one way or the other as a matter of law. It is a factual matter now.
CONCLUSION
The Court is well aware that, if discovery fails to bring clarity to some or all of these matters, the somewhat bizarre outcome of a jury trial may well be that the case (or some portion of it) should go to arbitration. That awkward result would be necessitated, though, unless discovery or stipulation creates the definition of what, if anything, is subject to arbitration.For the foregoing reasons the Motion is DENIED. SO ORDERED.