NEWS ANALYSIS Under construction: Court’s decision provides no blueprint

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Under state law, every new house built and sold in N.C. comes with an implied warranty that the home is free from major structural defects when it was sold, but the builder can expressly warrant the house for more, and for longer, often up to 10 years.

But a decision by an N.C. court comes with no warranty that it will ever be enforced ─ or even understandable ─ or for how long.

Such is in the case with Christie v. Hartley Construction Inc., an N.C. Court of Appeals decision handed down July 16.

The decision appears ─ emphasis on “appears” ─ to render invalid any express construction warranty longer than the six years stipulated by N.C. statute of repose, among the shorter such laws in the country.

To try to clarify the decision, The Mecklenburg Times asked about half a dozen lawyers familiar with construction law to interpret it and to prognosticate its impact on builders and homebuilding warranties.

They all had pretty much the same answers: “It depends” and “I don’t know.”

To muddy the stormwater runoff further, Scott C. Harris, one of the lawyers who represented the homeowners in the case, said his clients would appeal the case to the state Supreme Court, exercising a right they automatically received when one of the three judges on the panel disagreed with the other two.

The case involves a married couple who contracted with Hartley Construction of Carrboro in 2004 to build a custom home in suburban Orange County that has a Durham mailing address.

Although the builder gave them a warranty of only one year, the Orlando, Fla.-based manufacturer of an exterior cladding used on the house, GrailCoat WorldWide Inc., expressly warranted the waterproofness of its product for 20 years.

The homeowners alleged that GrailCoat’s faulty design and installation instructions caused water to leak into the home and rot the walls, compromising the home’s structural integrity. They sued GrailCoat and Hartley in 2011.

The trial court dismissed the suit because the state’s statute of repose limits any action to recover damages for defective or unsafe improvement to real property to six years after either the specific last act or omission by the defendant that caused the damage, or the substantial completion of the improvement. The law’s six-year limit does not apply only if the defendant is found guilty of fraud, or willful or wanton negligence.

The homeowners appealed, arguing that even though they brought their suit outside the six-year limit, their complaint was still valid because of GrailCoat’s express warranty.

They also said Hartley should be held liable for longer than his one-year warranty because he willfully and wantonly violated state building codes by using GrailCoat, which is banned in N.C.

Harris described the product to the court as similar to the faulty synthetic stuccos that caused a legal uproar across the country two decades ago.

On July 16, a divided appeals court disagreed and affirmed the lower court’s dismissal.

“A plaintiff whose action is not filed within the time set forth in the statute of repose has no cause of action for damages,” said Judge Wanda C. Bryant, writing for the majority.

Because the majority decision held that the plaintiffs could not seek damages ─ meaning money, in this case the $120,000 Harris said his clients spent to repair the house ─ the homeowners’ only legal recourse is what lawyers call “specific performance.”

That’s a legal phrase meaning the couple could seek only to force Hartley and/or GrailCoat to repair the house.

That’s as good as leaving the property owners no remedy at all because the house was unlivable and would have continued to rot during the time it took to compel the builder and manufacturer to fix it, said Mike Carpenter, executive vice president and general counsel for the N.C. Home Builders Association, headquartered in Raleigh.

“If you have a house that needs to be repaired immediately so that you can reside in it, specific performance is not realistic,” Carpenter said.

Significantly, both the majority opinion and Judge Robert N. Hunter’s dissent addressed only the GrailCoat warranty, ignoring the plaintiff’s argument about the illegality of its use by the builder. The two court opinions also did not address the plaintiff’s assertion that the statute of repose should be excused in the case because GrailCoat committed fraud by advertising that its product was waterproof.

Right or wrong, what the court said ─ and didn’t say ─ leaves a lot of room for interpretation when it comes to the decision’s impact on builders and warranties, which is one of the few things the construction lawyers contacted for this story agreed on.

To begin with, noted Dan Durden and David Jaffe, lawyers for the Washington, D.C.-based National Home Builders Association, the court’s disquisition considered only the product’s 20-year warranty. That left unanswered this question: Does the decision potentially nullify builders’ warranties that exceed six years?

Durden, senior vice president and general counsel of the NAHB, and Jaffe, vice president for legal advocacy of the group, answered their own question ─ sort of ─ by saying, “Potentially” (Durden); and, “It appears so” (Jaffe).

“This poses a very real question, and I am surprised it has not come up for us before,” Jaffe said. “This specific case seems to be about the product, but the decision also seems to suggest there is no recovery after six years in any case,” including against builders.

Or, as Durden put it: “This throws the use of the statute of repose under a cloud.”

Taking a different tack on the decision, Jorge Cowley, a state licensed engineer-turned-lawyer, said the court’s product/builder distinction could cause a welter of problems, but might actually benefit builders.

“There must be a thousand different products that go into building a home,” the Charlotte-based Cowley said. “Thirty-year shingles, 50-year caulk. They all have different warranties, many of them longer than typical builder warranties. This (decision) seems to let the builders off the hook, some.”

Meanwhile, at the NCHBA, Carpenter said the decision’s impact on homebuilders in the state could hinge on the majority decision’s phrase “no cause of action for damages.”

Many, if not most, new home warranties in the state require homebuyers to waive their right to sue builders in exchange for the warranties’ protections. Meaning, Carpenter said, they have no right to judicial relief to begin with.

But those same warranties also guarantee the homebuyers’ right to seek federal arbitration to resolve disputes.

The arbitration clause means that such warranties are not subject to the limitations of the statute of repose, said Karen McCorkle, who sells policies with arbitration clauses for the Denver-based 2-10 Home Buyers Warranty insurance company to more than 300 homebuilders across N.C.

But Carpenter isn’t so sure about that.

“First of all, arbitration doesn’t provide a whole lot of protection for homeowners to begin with,” Carpenter said. “More to the point, the court said ‘no cause of action,’ not ‘no cause of judicial action.’ Seeking arbitration is an action.”

All of these ─ and, no doubt, many other ─ questions and interpretations might make for a very interesting N.C. Supreme Court decision.

Or not.

The Christies are guaranteed a hearing before the state’s highest court. But the justices may not issue anything other than a one-page decision saying, without further comment or insight, that they affirm (or reverse) the appeals court decision.

No matter what the justices decide, the Supreme Court’s opinion ─ or lack thereof ─ would effectively be the final word on the matter.

At least until some other lawsuit comes along that challenges the statute of repose from a different legal angle.

Or unless the N.C. General Assembly, in its wisdom, changes the statute of repose, clarifying its impact on homebuilding warranties.

In the end, we might never know if Christie v. Hartley could have an impact on homebuilding warranties; or, if so, how.

If lawyers built houses, we would all be living under discarded court filings, legal opinions and statutes that had been folded, stapled and mutilated into very, very expensive tents.