John P. Kurle, et al., Appellants, vs. The Ryland Group, Inc., a Maryland corporation, d/b/a Ryland Homes, Respondent.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1089

 

John P. Kurle, et al.,

Appellants,

 

vs.

 

The Ryland Group, Inc., a

Maryland corporation, d/b/a Ryland Homes,

Respondent.

 

Filed May 5, 2004

Reversed and remanded Willis, Judge

 

Washington County District Court

File No. C7-02-4955

 

 

Daniel L. M. Kennedy, 4103 East Lake Street, Minneapolis, MN  55406-2259 (for appellants)

 

Jeffrey R. Ansel, Karl E. Robinson, Michael E. Obermueller, Winthrop & Weinstine, P.A., Suite 3500, 225 South Sixth Street, Minneapolis, MN  55402-4629 (for respondent)

 

            Considered and decided by Willis, Presiding Judge; Schumacher, Judge; and Minge, Judge.

U N P U B L I S H E D   O P I N I O N

WILLIS, Judge

In this action alleging breach of a new-home warranty, appellant buyers challenge the district court's grant of summary judgment to respondent seller.  Appellants argue that respondent modified statutory new-home warranties without complying with the requirements for modification provided by Minn. Stat. § 327 A. 04, subd. 2 (2002).  Alternatively, appellants contend that the district court should have referred the case to arbitration rather than dismissing it.  Because we conclude that the district court erred by finding that respondent complied with the requirements for modification of statutory new-home warranties and by granting respondent's motion for summary judgment after finding that a binding arbitration agreement exists, we reverse and remand.

FACTS

 

            In 2000, appellants John Kurle and Lisa Janowiec-Kurle contracted with respondent The Ryland Group, Inc. (Ryland) to build a home for the Kurles in Stillwater.  On August 14, 2000, four days before the closing on the home, the Kurles met with a Ryland representative, who gave them a document approximately 198 pages long entitled "Your Ryland Home," which contains four separate sections: Homebuyer's Guide, Financing Your Home, Homeowner's Manual, and Your Ryland Home Warranty Program Insured Limited Warranty.  At the same meeting, John Kurle signed a form called a "Pre-Settlement Orientation Report," which provides that, by signing the form, Kurle acknowledged that the "Homeowner's Guide" had been explained to him to his satisfaction. 

At the closing on August 18, among the documents that the Kurles signed was an application for the Ryland Home Warranty Program Insured Limited Warranty (Ryland limited warranty).  The Ryland limited warranty itself is found in the "Your Ryland Home" document that the Kurles received on August 14.  Although the "Your Ryland Home" document is not consecutively paginated, the Ryland limited warranty is found on approximately the 159th page of the "Your Ryland Home" document.  The warranty application form provides, in relevant part:  "[T]his warranty is an express limited warranty, and Ryland's liability is specifically limited by the terms and provisions of the limited Warranty Program. . . .  By signing, the Purchaser acknowledges that he/she has read the booklet and received a copy of this application . . . ." 

After moving into their new home, the Kurles began experiencing window problems, such as air leakage, excessive condensation, and persistent mold growth.  When the Kurles became dissatisfied with Ryland's response to their complaints, the Kurles sued Ryland, alleging breach of statutory warranty, breach of warranty of fitness for a particular purpose, breach of contract, and consumer fraud.  Ryland moved for summary judgment, or alternatively, to compel arbitration, on the ground that the Kurles are bound by the Ryland limited warranty, which requires arbitration of any dispute involving the warranty.  The district court granted Ryland's motion and dismissed the Kurles' claims.  This appeal follows.

D E C I S I O N

On appeal from summary judgment, this court must ask two questions:  "(1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law."  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  The district court properly grants a motion for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law."  Fabio v. Bellomo,504 N.W.2d 758, 761 (Minn. 1993).  This court "must view the evidence in the light most favorable to the party against whom judgment was granted."  Id.   No genuine issue of material fact exists "[w]here the record taken as  a whole could not lead a rational trier of fact to find for the nonmoving party."  DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997) (alteration in original) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986)).

Under Minnesota law, the seller of a completed new dwelling is required to provide warranties to the buyer, covering, among other things, defects that may arise from faulty workmanship, defective materials, or faulty installation due to noncompliance with building standards.  Minn. Stat. § 327 A. 02, subd. 1 (2002).  The warranties provided by section 327 A. 02 may be excluded or modified only by "a written instrument, printed in boldface type of a minimum size of ten points, which is signed by the vendee or the owner and which sets forth in detail the warranty involved, the consent of the vendee or the owner, and the terms of the new agreement contained in the writing."  Minn. Stat. § 327 A. 04, subd. 2 (2002).  No exclusion or modification will be effective unless the "vendor or the home improvement contractor provides substitute express warranties offering substantially the same protections to the vendee or the owner as the statutory warranties set forth in section 327 A. 02."  Id.  By enacting Minn. Stat. §§ 327 A. 02, .04, the legislature intended to protect new-home buyers.  Koes v. Advanced Design, Inc.,636 N.W.2d 352, 359 (Minn. App. 2001), review denied (Minn. Feb. 19, 2002).   

The district court found that, taken together, Ryland's limited warranty in the "Your Ryland Home" document and the warranty application satisfy the requirements of Minn. Stat. § 327 A. 04, subd. 2.  The Kurles argue that the district court erred by finding the arbitration provision in the Ryland limited warranty to be binding because there is no written instrument that (1) is printed in boldface type of a minimum size of ten points; (2) is signed by the vendee or the owner; (3) sets forth in detail the warranty involved; (4) reflects the consent of the vendee or the owner; and (5) provides the terms of the new agreement in writing, as required by Minn. Stat. § 327 A. 04, subd. 2. 

Ryland first argues that the inclusion of a provision requiring arbitration of all statutory warranty claims does not modify the warranties provided by Minn. Stat. § 327 A. 02 because the statute does not give the Kurles the right to a judicial forum.  We disagree.  Minn. Stat. § 327 A. 05 provides that upon breach of any warranty provided by section 327 A. 02, subdivision 1, the buyer will have a cause of action against the seller.  Minn. Stat. § 327 A. 05, subd. 1 (2002).  The eighth circuit court of appeals has defined a "cause of action" as a "situation or state of facts which entitles a party to sustain an action and gives him the right to seek judicial interference in his behalf."  Rhodes v. Jones,351 F.2d 884, 886 (8th Cir. 1965).  The arbitration provision in the Ryland limited warranty states that the Kurles may only seek a remedy for breach of the statutory warranties by arbitration and may not sue Ryland.  We conclude that this is a modification of the statutory warranties provided by Minn. Stat. § 327 A. 02.

Alternatively, Ryland argues that the district court correctly determined that, taken together, the limited warranty and the warranty application satisfy the requirements of Minn. Stat. § 327 A. 04, subd. 2.  We disagree.  The only document relating to the Ryland limited warranty that the Kurles signed is the warranty application.  The application alerts the purchaser to the fact that the warranty is limited by the terms of Ryland's limited warranty program, but that portion of the application is not in boldface or distinctive type.  The application does not mention that the Ryland limited warranty contains an arbitration provision.  Nor does the application set forth in detail the warranty involved, provide the terms of the new agreement in writing, or contain language showing that the purchaser consents to the terms of the new agreement. 

The limited warranty in the "Your Ryland Home" document sets forth in detail the warranty involved and provides the terms of the new agreement in writing.  But the limited warranty is not designed to be signed by the purchaser and in fact was not signed by the Kurles.  The Kurles argue that because they did not sign the limited warranty, they did not consent to arbitration of warranty disputes.  Ryland argues that signing the limited warranty itself is unnecessary because the Kurles signed a warranty application and a "Pre-Settlement Orientation Report" that refer to the "Your Ryland Home" document and the limited warranty that it contains. 

Ryland further argues that by signing the warranty application, the Kurles acknowledged that they had read the "booklet," which contains the terms of the limited warranty, including the arbitration provision.   But none of the documents in the record is called the "booklet."  Ryland maintains that the "booklet" is the "Your Ryland Home" document.  In support of this argument, Ryland notes that on page four of the Ryland limited warranty, at approximately page 162 of the "Your Ryland Home" document, the "Your Ryland Home" document is referred to as the "booklet."  But, of course, a buyer would have to locate the Ryland limited warranty in the "Your Ryland Home" document to learn that the "Your Ryland Home" document is also called the "booklet."  And in the "Pre-Settlement Orientation Report," Ryland refers to the "Your Ryland Home" document as the "Homeowner's Guide."     

This court has held even "substantial compliance" to be insufficient in considering Minn. Stat. § 514.011, the statute requiring that a prelien notice be printed in 10-point boldface type, stating that if the legislature had "merely intended to require that notice be set out in a manner likely to bring it to the attention of the buyer, it would have said so."  Niewind v. Carlson,628 N.W.2d 649, 652 (Minn. App. 2001).  Instead, the legislature specifically required that the notice be in 10-point bold type.  Id.   Because the statute was clear and not ambiguous, this court found that a contractor's notice must "strictly comply with the statute."  Id.   Here, in a case subject to a parallel statutory requirement, the Ryland limited warranty and the application for the Ryland limited warranty do not strictly comply with the requirements for warranty modification provided by Minn. Stat. § 327 A. 04, subd. 2.

Further, given the length of the "Your Ryland Home" document, its format and organization, and Ryland's interchangeable use of "booklet" and "Homeowner's Guide" when referring to the "Your Ryland Home" document, we conclude that the Ryland documents do not adequately alert a buyer to the location and details of any modifications to the statutory new-home warranties.  The requirements for modification of the statutory warranties are designed to make certain that (1) the seller informs the buyer of the nature of the statutory warranties to which the buyer is entitled, (2) the seller makes clear to the buyer in what particulars the seller proposes to modify the statutory warranties, (3) the buyer expresses consent to the modification, and (4) the buyer signs a written instrument containing all of the foregoing elements.  We find that the documents that make up the agreement between Ryland and the Kurles do not satisfy the requirements for warranty modification set forth in Minn. Stat. § 327 A. 04, subd. 2, and we therefore find that the district court erred by concluding that there is a binding arbitration agreement between the parties and by granting summary judgment to Ryland.  Because we reverse the district court's grant of summary judgment, we do not reach the issue of whether the district court erred by dismissing the case rather than compelling arbitration.

Reversed and remanded.