When you enter into a contract with a homebuilder, particularly a tract homebuilder, please consider two things when it comes to dispute resolution: (1) your purchase-and-sale agreement likely contains an arbitration provision, and (2) your limited warranty agreement you get in connection with closing likely also reinforces the arbitration provision, especially with warranty claims governed by the limited warranty agreement. This dispute resolution is important because it means the homebuilder wants disputes resolved through the arbitration process and NOT through the litigation process (where the nature of disputes and allegations are public).

Look, there are pros and cons with arbitration, no different than litigation. Arbitrating a dispute is not necessarily a bad thing, and with certain disputes, ideal. There is no right to appeal in arbitration, but the dispute should resolve itself quicker than litigation, and you’ll have more control over the decision maker, i.e., the arbitrator.

In a recent case, Osborne v. Drees Home of Florida, Inc., 49 Fla.L.Weekly D215a (Fla. 5^th DCA 2024), a buyer purchased a home from a homebuilder. The purchase-and-sale agreement and limited warranty contained arbitration provisions. The buyer, years later, sold the home to a subsequent buyer / purchaser and assigned the limited warranty it received from the homebuilder. The subsequent buyer then sued the homebuilder under theories of negligence and violation of Florida’s building code for defective stucco, windows, and painting. (There was no contract between the subsequent buyer and the homebuilder.) The homebuilder moved to compel mediation under the limited warranty agreement. The trial court granted the homebuilder’s motion; however, the appellate court reversed.

“[T]here are three elements for courts to consider in ruling on a motion to compel arbitration of a given dispute: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.” “The general rule is that where an arbitration agreement exists between the parties, arbitration is required only of those controversies or disputes which the parties have agreed to submit to arbitration.” “[T]he question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question of arbitrability’ is an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.” To determine whether a dispute must be submitted to arbitration, the scope of the arbitration provision governs. The scope of an arbitration clause is a pure matter of contract interpretation, and the determination of whether an arbitrable issue exists requires the court to examine the plain language of the arbitration agreement. “Although any doubts regarding the scope of an arbitration clause should be resolved in favor of arbitration, where the contract provision is not doubtful, arbitration should not be ordered.”

Osborne, supra (internal citations omitted).

The appellate court found the defect claims raised by the subsequent buyer were NOT covered by the limited warranty agreement, where the only warranty remaining was structural (load bearing) in nature: “Because the [plaintiffs’] claims are not within the scope of the Limited Warranty’s arbitration provision and the [plaintiffs] have not otherwise agreed to arbitrate their claims, we reverse the order compelling arbitration…..” Osborne, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

Can a subsequent purchaser pursue construction defect claims relating to the original construction of the property? This was the threshold issue on a motion for summary judgment by a drywall manufacturer against a subsequent purchaser of a home in Karpel v. Knauf Gips KG, 2022 WL 4366946 (S.D. Fla. 2022). This matter deals with the defective Chinese drywall that was installed in homes years ago. The plaintiffs, which were subsequent purchasers of a home, sued the manufacturer of the defective drywall for various theories including negligence, negligence per se, strict liability, breach of express and/or implied warranty, private nuisance, unjust enrichment, and Florida’s Deceptive and Unfair Trade Practices Act.

The trial court noted, from the onset, that Florida does NOT have a subsequent purchaser rule that prohibits subsequent purchasers from asserting construction defect claims. With this consideration in mind, the trial court went through the claims the plaintiff, as a subsequent purchaser, asserted against the manufacturer to determine whether they were viable claims as a matter of law.

Negligence Claim

The trial court found that a subsequent purchaser could sue in negligence. “Florida courts have long allowed subsequent purchasers to sue for negligence including in construction defect litigation.” Karpel, supra, at *2.

Negligence Per Se and Strict Liability Claims

The trial court held that the plaintiff’s negligence per se and strict liability claims were duplicative. Both could not stand; for this reason, the court entered summary judgment as to the duplicative negligence per se claim. “Strict liability means negligence as a matter of law or negligence per se, the effect of which is to remove the burden from the user of proving specific acts of negligence.” Karpel, supra, at *3 (quotation and citation omitted).

A subsequent purchaser could pursue a strict liability claim against a manufacturer. “[A] manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.” Karpel, supra, at *4 (quotation and citation omitted).

Even Section 402A of the Second Restatement of Torts, adopted by Florida’s Supreme Court, provides: “(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” Karpel, supra, at *4.

There are, however, limits on strict liability.

“First, Florida disallows recovery in tort where plaintiffs only claim economic losses such as ‘damages for inadequate value, costs of repair, and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property.” Karpel, supra, at *4 (citation omitted).

“Second, Florida courts will disallow recovery for strict liability where the purchaser was subject to the common law doctrine of caveat emptor.” Karpel, supra, at *4.

Thus, a subsequent purchaser’s strict liability claim could be pursued against a manufacturer provided such damages are not barred by the economic loss rule or the doctrine of caveat emptor (which applies to commercial property and property purchased at judicial auction sales). Karpel, supra, at *4.

Breach of Implied Warranty

The trial court found that a subsequent purchaser could NOT sue a manufacturer for breach of implied warranty. “[I]t is abundantly clear that in cases like these, where no contractual relationship between a subsequent purchaser and a manufacturer exists, the former’s recourse is a claim for strict liability.” Karpel, supra, at *4.

Breach of Express Warranty

While a contractual relationship is typically required for breach of express warranty, this requirement is relaxed if the express warranty is intended to benefit subsequent purchasers. “A manufacturer’s liability for breach of an express warranty derives from, and is measured by, the terms of that warranty.” Karpel, supra, at *4 (quotations and citation omitted). However, in this case, plaintiff’s breach of express warranty claim failed because the plaintiff never introduced any express warranty into the record.

Private Nuisance

The trial court held that the subsequent purchaser could NOT pursue a private nuisance claim against the manufacturer. To sustain a private nuisance claim, the plaintiff must prove that the defendant’s maintenance of the nuisance was the proximate cause of the plaintiff’s damages. Karpel, supra, at *8. “The Plaintiffs’ ownership and current control over the drywall conclusively forecloses them from arguing that the Defendants actively “maintain” the ‘nuisance’ they complain of.” Id.

Unjust Enrichment

The trial court held that the subsequent purchaser could NOT pursue an unjust enrichment claim against the manufacturer. An unjust enrichment claim requires the plaintiff to prove that the plaintiff conferred a direct benefit on the defendant. “The Plaintiffs conferred no direct benefit on the Defendant.” Karpel, supra, at *8 (finding that plaintiffs, as subsequent purchasers, obtained their homes from previous owners so the plaintiffs conferred no direct financial benefit on the manufacturer).

Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA)

The trial court found that a subsequent purchaser could theortetically pursue a FDUTPA claim. “Because the law is clear that a plaintiff need not have actually relied on the purported deceptive or unfair practice, the Court’s analysis need not go further….The Plaintiffs’ status as subsequent purchasers does not foreclose them from arguing that the Defendants’ practices violated FDUTPA.” Karpel, supra, at *9.

However, the trial court noted that actual damages under FDUTPA may implicate the economic loss rule because actual damages under the statute “are the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.” Karpel, supra, at *9 (quotation and citation omitted). For this reason, the court ordered the plaintiff and defendant to submit supplemental briefing because if the economic loss rule is implicated, the FDUTPA claim will fail (due to the same limitations relating to the strict liability claim).

Tag Archives: subsequent purchaser

CONSIDER ARBITRATION PROVISION IN HOMEBUILDER’S WARRANTY AND PURCHASE-AND-SALE AGREEMENT

SUBSEQUENT PURCHASER CAN ASSERT CLAIMS FOR CONSTRUCTION DEFECTS