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D.C. Court of Appeals Holds Trial Court Should Not Have Dismissed All of Condominium Purchasers’ Claims Against Developer After Unit Allegedly Flooded

Wetzel v. Capital City Real Estate, LLC
No. 12-CV-1218 (D.C. Court of Appeals, August 15, 2013)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

This appeal focused on whether the trial court properly granted the Defendant’s Motion to Dismiss as to the Plaintiffs’ multiple-count Complaint. Plaintiffs, the condominium unit purchasers, sued the Defendant, a real estate developer, after their condominium unit allegedly flooded. The flooding, which occurred in a 3 to 6 month period after the purchase, allegedly caused extensive damage, mold costing thousands of dollars to remediate, and destroyed the first flood area of the unit.

The purchasers filed a Complaint against the developer for fraud, violations of the District of Columbia Consumer Protection Act (CPA), violations of the District of Columbia Consumer Protection Procedures Act (DCPPA), breach of contract, breach of express warranty, and strict liability. The trial court dismissed all of Plaintiffs’ claims after the Defendant filed a Motion to Dismiss. The appellate court reversed in part, holding that the trial court erred in dismissing the fraud, DCPPA, and strict liability claims, but that the trial court correctly dismissed the CPA, breach of contract, and breach of express warranty claims.

Plaintiffs’ fraud claim should not have been dismissed. Plaintiffs’ Complaint alleged that the Defendant made several false representations, including that (1) the property was free from structural defects, (2) Defendant had secured proper permits for renovation of the property, and (3) the exterior masonry had a life of fifty (50) additional years, and that Defendant misrepresented the quality and character of the property’s walls. The Complaint alleged that Defendant knew the property’s true nature and actively worked to conceal this truth to sell the Property to an unsuspecting buyer at a price far higher than what the Property was actually worth. The Complaint alleged that in reliance on the representations, the Plaintiffs purchased the Property. Finally, the Complaint alleged that Defendants’ alleged misrepresentations resulted in damages including the thousands of dollars spent on mold reclamation, the cost to repair the structure, loss of use, and diminished value of the property. In accepting the allegations as true, the Court held that Plaintiffs sufficiently pled their claim for fraud.

Another count of Plaintiffs’ Complaint alleged that Defendant violated the District of Columbia Consumer Protection Procedures Act (DCPPA). The complaint stated that Defendants’ misrepresented the approval, certification, and characteristics of the basement walls; concealed previous long-term and extensive, uncorrected water damage; represented that the basement and walls were of a quality and grade that they were not; misrepresented that the basement and walls were free from defect; failed to disclose the material facts that there was damage to the basement or walls, there had been previous water damage, and there was no permit to build the deck; and misrepresented that the exterior masonry had a life of fifty (50) or more years. Additionally, the Complaint alleged that Defendant actively advertised and marketed the allegedly defective property as if it were in newly restored condition without defect; intentionally misrepresented the property in several statements while having complete knowledge as to the true condition of the property and the true nature of the permit status; and misrepresented the condition of the Property in advertisements it published in an attempt to sell a subpar piece of Property. Plaintiffs alleged they relied on those misrepresentations in deciding to purchase the property. Overall, the complaint alleged that Defendant made no fewer than 98 misrepresentations in violation of five (5) separate provisions of the DCPPA. In light of the allegations that Defendant was actively involved in renovating the property, and, as a professional developer, was aware of its defects, the complaint stated a legally viable claim under the DCPPA.

The District of Columbia follows the Restatement (Second) of Torts § 402A (1965) as to strict liability. Real estate is a “product” within the meaning of the Restatement. Further, not just the seller, but any party integral to the producing and marketing enterprise that placed the defective product into the stream of commerce may be found strictly liable. The Complaint alleged that Defendant, an experienced developer with significant experience in buying, renovating, and selling renovated real estate, knowingly put a defective product into the stream of commerce by advertising and allowing the property to be purchased by Plaintiffs. Additionally, the Complaint alleged the condominium unit was dangerous, which ultimately rendered a substantial portion uninhabitable, i.e., not reasonably fit for its intended purpose. Finally, the Complaint alleged that the defect was the direct and proximate cause of Plaintiffs’ injuries which included a level of mold growth that resulted in unacceptably hazardous air quality, resulting in loss of use and personal injury. Because Plaintiffs’ Complaint alleged facts, that, if proved, asserted a claim for strict liability, the dismissal of this claim was erroneous.

The Plaintiffs’ claims for breach of contract and breach of express warranty though, failed. The Plaintiffs’ claimed that Defendant “fail[ed] to accept responsibility” for necessary repairs, in breach of the express limited warranty in the Purchase Agreement and Public Offering Statement. Although the Complaint alleged that Plaintiffs signed an agreement with Defendant that included a limited repair warranty, the limited warranty referred to was not signed by and did not involve the Defendant. The documents were signed by the Plaintiffs and the seller—not the developer Defendant. Therefore, Plaintiffs did not make out a claim for breach of contract or breach of express warranty and those claims were properly dismissed by the trial court.

Finally, the CPA claim was properly dismissed because it applied only to actions to enforce rights arising from a consumer credit sale or a direct installment loan. Since the Complaint did not allege that Plaintiffs had financing with the developer, the CPA claim failed and was properly dismissed.

Therefore, the appellate court reversed in part, holding that the trial court erred in dismissing the fraud, DCPPA, and strict liability claims, but that the trial court correctly dismissed the CPA, breach of contract, and breach of express warranty claims.