Making A Viable Claim Under The Home Improvement Practice Code

Last week, the Wisconsin Court of Appeals filed its decision in Masterclean, Inc. v. Butler.  In Butler, a Waukesha County jury awarded the homeowners $29,407.37 in damages against a home restoration and remodeling contractor.  The trial court interpreted the jury's verdict as a finding that the homeowners suffered those damages as a result of the contractor's failure to put all material terms and conditions of the contract in writing in violation of the Home Improvement Practices Code, thus entitling the homeowners to double damages and reasonable attorneys' fees and costs pursuant to Wis. Stat. § 100.20(5).  After doubling the jury's damages award and tacking on reasonable attorneys' fees and costs, the trial court entered a $89,165.67 judgment against the contractor.  The Court of Appeals reversed the judgment, holding that there was no credible evidence supporting a finding that the contractor's failure to put all material terms and conditions of the contract in writing caused the homeowners' damages.  Since the jury also found that the contractor breached its contract and that this breach caused damage to the homeowners, the homeowners will still get a judgment against the contractor.  Unfortunately for them, this judgment will be a lot closer to $30,000 than $90,000.

I've written about the Home Improvement Practices Code before, including the basic requirement that the contractor "put it in writing."  For some reason, the contractor in this case brought a breach of contract claim against the homeowners for nonpayment even though its workmanship was shoddy and its contract violated the Home Improvement Practice Code.  To be clear, a contract that violates a statute or consumer protection regulation cannot be enforced by the contractor under most circumstances.  See Baierl v. McTaggart, 2001 WI 107, 245 Wis. 2d 632, 629 N.W.2d 207.  Contractors that sue homeowners for nonpayment based on a contract that does not perfectly comply with the Home Improvement Practices Code are playing with fire.  Their contract claims will be dismissed and their customers may even countersue them for the damages caused by their shoddy workmanship and Home Improvement Practices Code violations.

While a contractor's failure to "put it in writing" is a good defense for homeowners, the Butler decision shows how difficult it is for homeowners to prove that this Home Improvement Practices Code violation caused them damages.  The Court of Appeals noted that the homeowners' damages were the estimated cost of correcting poor workmanship and also noted the lack of evidence that the contractor had performed unauthorized work.  Essentially, the homeowners would have suffered almost $30,000 in damages even if the contractor had crossed all of its Ts and dotted all of its Is.  Conversely, the homeowners would not have suffered almost $30,000 in damages had the contractor completed its work in a competent and professional manner.

In contrast, it is much easier to prove that a contractor's misrepresentations caused a homeowner's damages.  The Home Improvement Practices Code specifically prohibits contractors from making "any false, deceptive, or misleading representation in order to induce any person to enter into a home improvement contract, to obtain or keep any payment under a home improvement contract, or to delay performance under a home improvement contract."  Wis. Admin. Code § ATCP 110.02(11).  The homeowner's straightforward argument is that he or she only hired this contractor because he said that he had experience making such improvements, that his work was guaranteed to prevent the basement from leaking, or that he was certified to install EPDM roofs.  The homeowner suffered damages in the amount that he or she had to pay the contractor or in the amount that he or she must pay to correct the contractor's work as a direct result of the contractor's misrepresentations.

Other Home Improvement Practices Code violations that may cause a homeowner to suffer damages include the following:

• Failing to disclose the identity of any other person assuming responsibility for the performance of the contract, such as when a credentialed contractor farms out his work to anyone with a truck, Wis. Admin. Code § ATCP 110.05(5)
• Starting work without obtaining the required permits, especially when the building inspector would have stopped the work, Wis. Admin. Code § ATCP 110.03(1)
• Failing to provide notice of an impending delay in contract performance, especially when the contractor leaves a roofing job to go deer hunting without protecting the exposed areas and does not warn the homeowner.

Please contact me at rudolphkuss@stevensandkuss.com if your contractor has abandoned you, has performed improper work, or is threatening to sue you for nonpayment.

Wisconsin Court of Appeals: Property Owners May Testify On The Value Of Their Property

Last week, the Wisconsin Court of Appeals filed its decision in Mueller v. Harry Kaufmann Motorcars, Inc. Ms. Mueller contended that the defendant had misrepresented the condition of the car that it sold her and attempted to testify on what the car was really worth to her in light of its true condition. The Milwaukee County Circuit Court barred Ms. Mueller from sharing this testimony with the jury. This resulted in dismissal of Ms. Mueller's claim because she presented no other evidence that she was damaged by the defendant's misrepresentations.

The Court of Appeals reversed the dismissal of Ms. Mueller's claim, holding that the trial court erred in barring her from testifying on the value of her property. The Court of Appeals noted that it had previously held in D'Huyvetter v. A.O. Smith Harvestore Products that testimony from a farmer's wife that a silo was worth "nothing" was credible evidence that the silo's actual value was $0.00. This established "benefit-of-the-bargain" damages measured by the difference between the purchase price (the value of the silo as represented) and $0.00 (the actual value of the silo).

This issue comes up in residential real estate misrepresentation cases all the time. Granted, cost of repairs are usually our clients' best evidence of damages. If my client's basement leaks due to a hampered drain tile system, I usually seek the cost of a new drain tile system. If my client's roof leaks, I usually seek the cost of replacing the shingles. However, diminished value is the best measure of damages in a residential real estate misrepresentation case under some circumstances:

• When my client insists that numerous conditions were misrepresented and I do not want to bore the judge or jury with twenty different repair proposals;
• When I am concerned that the wrong judge or jury will reject the proposed repairs as extreme, such as moving the home or raising its foundation.

Under these circumstances, I would argue, as I did here, that my clients' property is worth less than what they paid for it and that this difference is their measure of damages. Contrary to the arguments that I typically hear from defense counsel, one does not need to be qualified as an appraiser to testify on the actual value of his property. See Trible v. Tower Insurance Co.; Swedowski v. Westgor. Furthermore, this testimony need not be based on independent financial data. See D.L. Anderson's Lakeside Leisure Co., Inc. v. Anderson; Mayberry v. Volkeswagen of Am., Inc.; Accuweb, Inc. v. Foley & Lardner.

My only caveat is that residential real estate cases are not lemon law cases; your property is not worth "nothing." Even if your home is permanently plagued with toxic black mold and your doctor has urged you to move out immediately, the land still has value. In most circumstances, a homeowner can convincingly testify that he or she would have paid 10-20% less for their property had the seller fully disclosed the defects affecting it.     

  

Stevens & Kuss To Wisconsin Supreme Court: Overrule Linden V. Cascade Stone Company

For the first time since December of 2006, I petitioned the Wisconsin Supreme Court to review a Court of Appeals' decision. Once again, it was a decision holding that my clients' claims are barred by the economic loss doctrine. Admittedly, I telegraphed my pitch to the Wisconsin Supreme Court in a post from January. As I said back then:

Unfortunately for homeowners, the Wisconsin Supreme Court held in Linden v. Cascade Stone Co., 2005 WI 113, that negligence claims against builders and their subcontractors are barred by the economic loss doctrine. Wisconsin law does nothing to deter slipshod and shoddy construction work by builders and their subcontractors, and it does nothing for homeowners (like the Liebls) who have been victimized by such carelessness. Deterring contractor negligence is an important public safety issue, as homeowners, renters, and their children are all endangered by sloppy construction practices. As discussed in the Milwaukee Journal/Sentinel article, the quality of residential construction has been declining for years, and construction professionals are seeing more and more mold cases as a result.

At some time in the future, the Wisconsin Supreme Court will be presented with another negligent construction case. When that day comes, our supreme court needs to consider the interests of all present and future homeowners and the public health, safety and welfare, instead of just considering the private interests of contractors and their insurance companies. The time has come for the Wisconsin Supreme Court to overrule Linden and bring back the negligent construction claim.

The time has come for someone to put their foot down, and that foot is me:

This court needs to overrule Linden and return the economic loss doctrine to its U.C.C. and product liability origins. See Wis. Stat. (Rule) § 809.62(1)(e). Before Linden, negligence claims against contractors and other service providers survived the economic loss doctrine - a common law doctrine that was intended to save the legislatively-enacted Uniform Commercial Code from common law products liability claims.  Since repair and construction contracts are not covered by the U.C.C., there was no reason to deprive victims of negligently-provided services their tort claims.  See Ins. Co. of N. Am. v. Cease Elec. Inc., 2004 WI 139, ¶ 35, 274 Wis. 2d 361, 683 N.W.2d 462. That all changed in Linden, in which this court held that the economic loss doctrine was available as a defense to certain homeowner tort claims against subcontractors. See Linden, 283 Wis. 2d 606, 699 N.W.2d 189, ¶ 32. This court’s Linden decision relied upon a Florida Supreme Court decision, which that court has recently overruled. See id., ¶ 28 (citing Casa Clara Condominium Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So. 2d 1244 (Fla. 1993), overruled by Tiara Condominium Ass’n, Inc. v. Marsh & McLennan Cos., Inc., 110 So. 3d 399, 407 (Fla. 2013)). This court should join the Florida Supreme Court in returning the economic loss doctrine to its principled roots in U.C.C. and products liability law.  The residential construction industry desperately needs the deterrence from negligent workmanship that only tort law can provide.  

While I also argue that the Court of Appeals' decision should be reversed because it is in conflict with Linden, I appear to be the first attorney in a long time to expressly ask the Wisconsin Supreme Court to overrule Linden. I fully understand that Linden has been the law for nine long years and that the Wisconsin Supreme Court only grants about 5% of all petitions for review, but nothing is going to change for Wisconsin homeowners unless someone challenges Wisconsin Supreme Court precedent every once in awhile.    

Buyers Should Always Hire Their Own Inspectors

Home inspections are the most common type of pre-closing inspection in residential real estate transactions. In the WB-11 Residential Offer To Purchase, the buyer's offer can be made contingent on a licensed home inspector completing an inspection that does not report any defects in the property. Assuming that the seller does not have the right to cure, the buyer may be able to back out of the purchase if the home inspector reports any defects - any conditions that would significantly reduce the value of the property, impair the health of its occupants, or reduce its expected life. Home inspections have helped buyers back out the purchase of properties with sinking foundations, sagging roofs, black mold, and other defects.  

Buyers select, contract with, and pay for their home inspector. If a home inspector fails to report on any defects, he may be liable to the buyer. Consequently, the home inspector has an incentive to do a thorough inspection for the buyer.

Properties not served by municipal water and sewer are often contingent on inspections of the well system and the private sanitary (septic) system. However, these contingencies are a different animal. The standard Addendum A To Residential Offer To Purchase normally requires the seller to select, contract with, and pay for well and septic system inspectors. These contingencies are deemed satisfied unless an inspector reports that one of these systems is disapproved for current use.

Trouble is, a lot of failed well and septic systems have not been disapproved for current use. Buyers want a well that doesn't run dry and a septic system that doesn't result in wastewater backing up in their sinks, toilets, and basements. The standard contingencies only address disapproval for current use.

Even worse, well and septic inspectors hired by the seller owe their loyalty to the seller; they may be inclined to say "move along people, nothing to see here!" While well and septic inspectors hired by the seller could be liable to the buyer, these inspectors have legal and factual defenses based on their lack of a contractual relationship with anyone other than the seller.

A new well can cost over $10,000, and a sanitary mound system can run you over $20,000. For that reason alone, buyers should make their offers contingent on well and septic system inspections completed by inspectors that they select, contract with, and pay for. These contingencies should only be deemed satisfied if and only if these inspectors do not report on any defects in these systems. Otherwise, the buyer risks purchasing a property with a legal well that only produces two gallons of water per minute and a legal septic system that occasionally fills the basement with wastewater. 

Real Estate Brokers, "As Is" Clauses, And The Unauthorized Practice Of Law

In prior posts, I have discussed the duty to disclose defects in residential property - a duty that is owed to all buyers by both the seller and the real estate broker. When a seller tells his real estate broker that his property's basement leaks, the real estate broker should insist on this information being included in the Real Estate Condition Report. What happens, though, when the seller responds to this advice by asking his real estate broker if he can sell his property "as is"?

For starters, real estate brokers caught in this dilemma should review Cori Lamont's excellent article about "as is" clauses in Wisconsin Real Estate Magazine. The most important point is that an "as is" clause DOES NOT relieve a real estate broker of her obligation to disclose defects to all buyers under Wis. Admin. Code § REEB 24.07(2). Indeed, I believe that a real estate broker who does not disclose defects to all buyers is also violating her duty to act to protect the public from fraud and misrepresentation under Wis. Admin. Code § REEB 24.03(2)(b).

To review, the seller wants you to help him escape any risk of liability for misrepresentation. If you help the seller sell his property "as is," you will remain potentially liable to the buyer for failing to disclose the defects that your seller told you about. The "as is" clause may save the seller, but it cannot save you. What's not to like?

But wait, it gets worse! A real estate broker risks violating several rules within Wis. Admin. Code § REEB 16- Approved Forms And Legal Advice if she gives the client what he wants. A real estate broker would have to draft a special "as is" form because no approved form contains "as is" language. Trouble is, Wis. Admin. Code § REEB 16.04 bars real estate brokers from drafting special, non-approved forms. Theoretically, a real estate broker could hand write "as is" language in a counteroffer or amendment, but Wis. Admin. Code § REEB 16.05 bars real estate brokers from giving opinions regarding the legal effect of such language. The seller would want to know if the "as is" language will be his "get out of jail free card," but it is Unlicensed Practice of Law for a real estate broker to give such an opinion. Real estate brokers who draft non-approved forms or engage in Unlicensed Practice of Law demonstrate "incompetency to act as a real estate licensee in a manner that safeguards the interests of the public" pursuant to Wis. Admin. Code § REEB 16.07. That's not the only possible consequence, as explained in Wis. Stat. § 757.30(1): 

Every person, who without having first obtained a license to practice law as an attorney of a court of record in this state, as provided by law, practices law within the meaning of sub. (2), or purports to be licensed to practice law as an attorney within the meaning of sub. (3), shall be fined not less than $50 nor more than $500 or imprisoned not more than one year in the county jail or both, and in addition may be punished as for a contempt.

Therefore, real estate brokers should "just say no" when asked to draft "as is" language on behalf of sellers of residential property.  

What's In Your Wallet?- 2013 AB 523 And The Defrauded Homeowner

In the good old days (before December 2, 2011), homeowners who prevailed at trial against their sellers could enter a judgment against their sellers and watch that judgment grow at a rate of 12% a year. Sellers found liable by a jury would often find a way to pay off their debts to our clients right away - who wants a debt that accrues interest at 12% a year? Only payday loans and credit card balances earn a higher interest rate. Any rational debtor wants to pay off their higher interest rate debts first.

That all changed with the enactment of 2011 Wis Act 69, which reduced the interest rate on civil judgments to 1% plus the prime rate. The prime rate has been stuck at 3.25% for years, so homeowners who have entered judgment against their sellers since December 2, 2011 have watched their judgments grow by a paltry 4.25% a year. Sellers are no longer motivated to pay off their debts to homeowners. Sellers are only motivated to pay off their debts to our clients when their creditors demand it - when they want to finance the purchase of property or refinance their existing loans.

At least 2011 Wis. Act 69 applied equally to ALL creditors- credit card companies that obtained judgments against homeowners and other consumers were treated the same as homeowners who obtained judgments against their sellers. Unfortunately, it appears that this equal treatment of creditors will end soon. The Wisconsin Assembly has passed  2013 AB 523, which proposes to increase the annual interest rate on small claims judgments to 12% while leaving the annual interest rate on large claims judgments unchanged.

This proposed law, which still must be approved by the Wisconsin Senate and signed by the Governor, would be incredibly unfair to homeowners and other consumers. The damages that we suffer at the hands of negligent professionals and fraudulent sellers will almost always exceed the $10,000 small claims limit, so their debts to us will accrue interest at only 4.25% per year. On the other side of the coin, homeowners and other consumers are the most common small claims debtors. Some of us fall behind on our credit card balances or our medical bills. If this bill becomes law, our debts to them will accrue interest at 12% per year. In short, some creditors will become more equal than others.

I agree that the 12% interest rate on civil judgments should be restored, but that change should apply to ALL civil judgments. There is no rational reason for our legislature to place the interests of credit card companies ahead of the interests of injured and defrauded homeowners and consumers.

UPDATE - This proposed law has been resurrected as 2015 AB 95 and 2015 SB 76. Please see Wisconsin Consumer Blog for a different perspective.

Real Estate Agents: Just Disclose It

Back when I introduced this blog, I noted that my partner and I primarily represent homeowners who have purchased defective property in their cases against those involved in that purchase. My blog posts have almost exclusively focused on cases against sellers. Many of you might ask "what about cases against real estate agents?"

I believe that I have represented more real estate agents than I have sued. Sellers are usually the only defendants in the cases that we pursue on behalf of defrauded homeowners. Our client's contract is with the seller, not with the seller's real estate agent. Also, as real estate agents remind me when I question them about their involvement, the disclosure form for defects in residential real estate transactions is the Seller's Real Estate Condition Report. It is the seller who completes and signs the Real Estate Condition Report. Obviously, the seller who has lived in the home for twenty-plus years is in a better position to know if the basement leaks than a real estate agent who has visited the home once.

About the only way that a seller's real estate agent (listing agent) can get him or herself in trouble with the buyer is by falsely advertising the property or by not disclosing defects. We occasionally pursue cases against listing agents for making false statements in their advertising flyers, such as falsely representing that a property is zoned commercial. Since those cases are very rare, a listing agent should be primarily concerned with making sure that all defects are disclosed in writing to all buyers. Sellers completing Real Estate Condition Reports are often full of excuses for not wanting to disclose their basement problems:

• "It only happened once - in June 2008 when I-94 flooded"
• "It hasn't happened in years"
• "My Uncle Louie fixed the problem"

 A competent and honest real estate professional will ask him or herself "is this something that a buyer would want to know?" Listing agents should also recognize that sellers (gasp!) often minimize their basement problems. June of 2008 might actually mean "every June since 2008." It hasn't happened in years might actually mean "2016." Uncle Louie might be kookier than Uncle Buck. Listing agents must recognize that Wis. Stat. § 709.02 is intended to protect them and that they must advise sellers to disclose, disclose, DISCLOSE! If a seller tells his or her listing agent about a defect but refuses to disclose it in a Real Estate Condition Report, the listing agent had better make sure that the defect is disclosed to all buyers in writing. Otherwise, the listing agent faces liability under Wis. Stat. § 452.133(1)(c) or Wis. Admin. Code § REEB 24.07(2).

Sellers who are questioned about why they did not disclose certain defects in their Real Estate Condition Report often try to throw their listing agent under the bus. Sellers may testify that they told their listing agent about their shifting foundation wall and that their listing agent advised them to omit that defect from their condition report and paint over that wall. That actually happened on the morning of my first bench trial, so I called the listing agent to testify that afternoon. He clearly and unambiguously testified that he was never told about any basement defects and that he would have advised the sellers to disclose any basement defects in their condition report had they simply told him about those defects. I usually find such explanations convincing, and so do judges and juries. In order to sue a real estate agent, I have to be convinced that the agent knew about the defects. Why would a real estate agent risk being held liable for repair costs and diminished value and jeopardize his or her license for a 6% commission? That does not make sense!