Kelsey Lane Homeowners Ass'n v. Kelsey Lane Co., Inc.

• Decision Date: 10 January 2005
• Docket Number: No. 53268-5-I.
• Citation: Kelsey Lane Homeowners Ass'n v. Kelsey Lane Co., Inc., 103 P.3d 1256, 125 Wash. App. 227 (Wash. App. 2005)
• Court: Washington Court of Appeals
• Parties: KELSEY LANE HOMEOWNERS ASSOCIATION, a Washington nonprofit corporation, Appellant, v. KELSEY LANE COMPANY, INC., a Washington corporation, Respondent, and Does 1 Through 20, Defendants.

103 P.3d 1256

125 Wash. App. 227

KELSEY LANE HOMEOWNERS ASSOCIATION, a Washington nonprofit corporation, Appellant, v. KELSEY LANE COMPANY, INC., a Washington corporation, Respondent, and Does , Defendants.

No. 53268-5-I.

Court of Appeals of Washington, Division One.

January 10, 2005.

Richard Harvey Levin, John Christian Siegel, Levin & Stein, Seattle, WA, Jerry Harvey Stein, Los Angeles, CA, for Appellant.

Jerret E. Sale, Deborah Lynn Carstens, Gregory A.V. Clark, Bullivant Houser Bailey, PC, Seattle, WA, for Respondent.

Andrew C. Cook, Building Industry Ass'n of Washington, Olympia, WA, for Amicus Curiae — Building Industry Association of Washington.

AGID, J.

A condominium homeowners association appeals a trial court's order dismissing its case on summary judgment. The association sued the condominium project's declarant after construction defects caused severe water damage to the condominium buildings. The association now argues the trial court erred by finding no genuine issue of material fact about the declarant's actual knowledge of the defects and by dismissing the case without considering claims that relied on a "should have known" standard. But no evidence suggests that the declarant had actual knowledge of the defects. And because a declarant need not include construction defects in its public offering statement and there is no evidence that the declarant breached its fiduciary duty while it controlled the homeowners association, the declarant may not be held liable under a "should have known" standard. We affirm.

FACTS

The Kelsey Lane condominium complex is located in Bellevue and consists of 40 units in nine buildings. In 1993, the condominium project's declarant, Kelsey Lane Company, Inc. (KLC), contracted with Sacotte Construction, Inc., to build the complex. KLC also hired Danali Management Corporation (DMC) as the independent project manager. DMC assigned its employee Allen Bayne to the project. By late 1994, construction was complete, and the City of Bellevue had issued final certificates of occupancy for all nine buildings.

In May 2002, during a routine inspection of the buildings' vinyl siding, inspectors found rot under the building envelope systems. Later that year, engineering investigators removed the siding in 20 locations and discovered that the required building paper was either missing or installed incorrectly in 75 percent of the exposed areas. They also discovered that flashing was missing or improperly installed in many locations. Because vinyl siding is not waterproof, building paper and flashing are installed to create a weather-resistant barrier between the siding and the wall sheathing and wood framing. When the building paper and flashing are missing or improperly installed, water penetrates the sheathing and framing and causes decay. According to the investigators, the water intrusion at Kelsey Lane was so bad that some walls were heavily decayed and in a state of imminent collapse. There was also a likely danger of mold contamination.

In July 2002, the Kelsey Lane Homeowners Association (Association) sued KLC for fraudulent concealment, misrepresentations and omissions in the public offering statement, breach of fiduciary duty, and violation of the Consumer Protection Act. In August 2003, the trial court dismissed all claims on summary judgment and denied the Association's motion for reconsideration. The Association appeals.

DISCUSSION

In reviewing a trial court's decision to grant summary judgment, we review questions of law de novo.¹ We consider all facts and reasonable inferences in the light most favorable to the nonmoving party.² Absent a genuine issue of any material fact, the moving party is entitled to summary judgment as a matter of law.³ Summary judgment is proper "only if reasonable persons could reach only one conclusion from all of the evidence."⁴

I. Fraudulent Concealment

The Association contends that KLC fraudulently concealed from prospective purchasers the fact that building envelope components were missing or improperly installed. To prove a fraudulent concealment claim, the Association must show: (1) there was a concealed defect in the residential building; (2) the builder knew of the defect; (3) the defect is dangerous to the purchaser's property, health, or life; (4) the purchaser was unaware of the defect and a reasonable inspection would not have disclosed the defect; and (5) the defect substantially reduces the property's value or defeats the transaction's purpose.⁵ Here, KLC disputes the second factor, arguing that the Association failed to present evidence that KLC knew of the construction defects.

The Association responds that while KLC may not have known of the defects, Bayne (the independent project manager) and Sacotte (the general contractor) did, and their knowledge is imputed to KLC. To support this claim, the Association argues that the defects were exposed for a long time during the construction process, so Bayne and Sacotte had ample opportunity to notice them, the defects were numerous and obvious, and a professional with Bayne's experience "would undoubtedly have noticed" the defects. A construction expert, an architecture expert, and an engineering expert averred that any experienced construction professional on the condominium construction site would have clearly and obviously recognized the defects. But Bayne responded that he never observed the construction defects. And while Bayne was responsible for monitoring the budget and progress toward completion of the project, he was not charged with inspecting or approving any of the construction. In addition, he stated that he had little opportunity to observe the defects because he was on the site fewer than two hours per week. He also testified that the siding was installed as each building was completed, as quickly as possible once the building paper and flashing were installed. This decreased the likelihood that he would happen to be on the site when it was possible to notice the defects.⁶

Relying on Atherton Condominium Apartment-Owners Ass'n Board of Directors v. Blume Development Co.⁷ and Norris v. Church & Co., Inc.,⁸ the Association argues it has presented enough evidence to create a question of fact about whether Sacotte and Bayne knew of the defects. In Atherton, the Blume Development Company was the owner, developer, construction contractor, and vendor of a condominium complex. Three years after the condominiums' completion, portions of the exterior walls began to crack and fall off. The homeowners learned that instead of applying stucco to the exterior walls, Blume had used a stucco substitute that was not authorized by the plans and did not satisfy fire resistivity standards. The homeowners sued Blume, arguing that Blume's failure to disclose its departure from the plans and guidelines constituted fraudulent concealment. The Supreme Court held that the claim survived summary judgment because the evidence supported a reasonable inference that Blume knew it deviated from the approved plans by using the unapproved stucco substitute.⁹

In Norris, the homeowners purchased a newly-constructed home that Church built. When the windows and doors began to leak, Church advised the homeowners to clean their roof gutters and replace roofing tiles. But the areas continued to leak, causing extensive water damage throughout the home. The homeowners sued Church for fraudulent concealment. We held the case survived summary judgment because the homeowners produced sufficient evidence that Church actually knew of the defects. Specifically, Church testified that it was aware that subcontractors installed windows without leak-preventing material, that the siding was improperly in contact with the ground, and that the problems were readily apparent. In addition, the subcontracts did not call for material to properly seal the windows.¹⁰

We noted that because Church testified the problems were readily apparent, "the trier of fact could infer that [Church] must have known of the defects at the time of the construction."¹¹ The Association relies on this, arguing that because experts stated that the defects would have been readily apparent, a trier of fact could conclude that KLC, Bayne, or Sacotte knew of them. But in Norris, the defendant builder itself testified that the defects were apparent. Here, neither KLC, Bayne, nor Sacotte testified that the defects were apparent. Instead, an uninvolved party stated that the defects would have been apparent. This is an important distinction.

Unlike the evidence presented in Atherton and Norris, the Association's evidence only creates an issue of fact about whether Bayne and Sacotte should have known about the construction defects. Bayne stated that he was unaware of the defects, and Bayne's job duties did not include performing quality control. Moreover, the record contains no information relating to Sacotte. Viewing the evidence in the light most favorable to the Association, no evidence supports the claim that Bayne and Sacotte in fact knew of the defects. And speculation is insufficient to defeat summary judgment.¹²

But even if the Association's evidence created an issue of fact regarding Bayne's and Sacotte's actual knowledge, the Association's claim nevertheless fails because KLC did not actually know about the defects. The Association claims that because both Bayne and Sacotte were KLC's agents, their knowledge of the construction defects is imputed to KLC and thus the fraudulent concealment claim against KLC may go forward. Generally, an agent's knowledge is imputed to the principal if that knowledge is relevant to the agency relationship.¹³ An agency relationship exists, expressly or impliedly, when one party acts under the direction and control of another.¹⁴ An independent contractor is generally not considered an agent because the contractor acts in his own right and is not subject to another's control.¹⁵ To determine...