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Ivashenko v. Katelyn Court Company, Inc.

401 N.J. Super. 99, 949 A.2d 279 (App. Div. 2008)

CONTRACTORS; HOMEOWNERS WARRANTIES — An election to proceed under the New Home Warranty and Builders Registration Act does not preclude a homeowner from later filing suit, if when making its warranty claim, it was done without full knowledge of the nature of the damage and the contractor had deprived the homeowner of a realistic opportunity to understand the nature and scope of the potential problems facing the homeowner when electing to proceed under the Act.

Soon after owners of a newly constructed home moved in, they notified their builder that the rear foundation wall needed repair because it was bowing. They subsequently filed a New Home Warranty (HOW) claim, asserting that the rear foundation wall was defective. Unknown to the owners, during construction, an equipment truck struck the wall for which the home architect had provided plans for its repair. Some repairs were made. A claim analyst from the Bureau of Homeowner Protection received the owners’ expert report that recommended the wall be reconstructed with new reinforcement. The claim analyst though, concluding no major structural defect, simply recommended that the owner monitor the wall through the warranty period. The owners filed a second claim immediately for dispute settlement, but an arbitrator dismissed the claim as duplicative of the first HOW warranty claim.

The wall continued to deteriorate over the next two years leading to increased bowing. The owners filed another HOW warranty claim. Prior to its hearing, the owners discovered that the municipality, prior to their moving in, had issued a Notice of Unsafe Structure related to the foundation. The owners’ expert declared the wall continued to move inward, the earlier repairs had not resolved the problem, and the overall construction of the wall was deficient. The owners withdrew their pending claim, and sued the builder notably charging the builder with negligent construction, and breach of contract. The owners also filed a claim of negligence against the architects in their initial design of, and subsequent repairs to, the foundation wall.

The builder and architects each moved for summary judgment. The lower court found that the owners’ lawsuit against the builder and architects of their home was barred by their choice of election remedy under the New Home Warranty and Builders Registration Act and by collateral estoppel. On appeal, the owners’ argued that their election to proceed under the Act was not knowing and voluntary, and therefore the Act’s election of remedies provisions did not preclude their lower court action.

The Appellate Division agreed and reversed the lower court’s finding, thereby reinstating the owners’ lawsuit. It found that the election of remedies provisions did not apply to the owners because they did not initiate their HOW warranty claims with full knowledge of the damage to their home. The Court noted that at the time the owners filed their first HOW warranty claim, they were unaware that a bulldozer had struck the foundation wall while the home was under construction, or that the municipality had issued a Notice of Unsafe Structure as a result of the accident. According to the Court, the owners were deprived of a realistic opportunity to understand the nature and scope of the potential problems facing them when they elected to proceed under the Act rather than seek relief in court. The Court also found that collateral estoppel could not work to prohibit their claim against the architects, who were not a party to the HOW warranty claim, in that the Bureau’s decision simply told the owners to monitor the wall. The Bureau had not rendered a final adjudication on the merits such as would invoke the architect’s collateral estoppel defense.


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