515B Warranties’ Teeth Upheld by the Minnesota Court of Appeals

by Karli Sharrow KS News

The Minnesota Court of Appeals recently issued an important decision in a construction defect action brought by a condominium homeowners association:  650 North Main Ass’n. v. Frauenshuh, Inc. et al, 2016 WL 4420781 (Minn. App. Aug. 22, 2016) (not yet published in N.W.2d).  In its lengthy (19 page) opinion, the court clarified several important legal and procedural aspects of the “515B warranties” given to HOAs and their members by the Minnesota Common Interest Ownership Act (“MCIOA”).     

The basic case facts were simple:  The condo association (“650”) had identified water intrusion into the building, and filed suit against several developer/declarant entities (“Frauenshuh”), as well as the general contractor that built the building (“Kraus-Anderson”).  At trial, the jury apportioned fault for the construction defects to Kraus-Anderson and the architect that had designed the building.  Nonetheless, as a result of a post-trial motion, the trial court held the developer/declarant Frauenshuh responsible for all of the damages allocated to Kraus-Anderson and the architect, relying on MCIOA’s section 515B.4-113.(b)(2) implied warranties. The court also granted 650’s request for attorney fees and costs under MCIOA’s section 515B.4-116, liberally awarding them against Frauenshuh as the non-prevailing party. 

On appeal, the Court of Appeals generally upheld the trial court’s handling of the 515B warranty issues.  In addition to deciding several technical, procedural matters relating to post-trial motions, the appellate court determined that:  

-A declarant’s liability for breaches of 515B implied warranties are not excused because they may have been proximately caused by a third-party’s negligence (a contractor, subcontractor, or design professional).  The 515B warranties under MCIOA are non-delegable, and are akin to strict liability.    

-“Cost" awards to prevailing property owners under 515B.4-116(b) include not only the statutory taxable costs (Minn. Stat. 549.02, 549.04, and/or 357.25), but also any other reasonable litigation expenses.  The appeals court upheld the district court’s award of more than $75,000 in litigation expenses, including in excess of $67,000 for expert witness fees. Most of the expert witness fees had been incurred for investigative and reporting purposes, rather than explicitly for trial preparations.   

-The attorney fee award to 650 under MCIOA’s 515B.4-116(b) was proper. The district court had applied the lodestar method of fee calculation (multiplying the number of hours worked by the attorneys by a reasonable hourly rate of $300), and awarded attorney fees to the association in excess of their damage award. The appellate court said that the proportionality of fees to a damages claim is not an essential element of the “reasonable fee” evaluation.  The court was also not persuaded by Frauenshuh’s argument that 650 had only partially “prevailed” because it had originally asserted five claims against two defendants, tried two of those claims, and only prevailed on one claim against one defendant.  

In noting that "the remedies provided by chapter 515B are to be ‘liberally administered to the end that the aggrieved party is put in as good a position as if the other party had fully performed.’ Minn.Stat. § 515B.1–114,” the Minnesota Court of Appeals upheld and clarified some of the MCIOA provisions with the sharpest teeth for homeowners associations suffering from construction defects.  

**[Footnote]** BKSN attorney Will Rogers was on the trial team for 650. Congrats to him and to co-counsel Jonathan Edin for a great result on 650’s behalf!

Court of Appeals Decision - 650 North Main Ass'n v. Frauenshuh, Inc.