Paulsen v. Anderson, File No. 07-10393.

Decision Date26 May 2008
Docket NumberFile No. 07-10393.
PartiesDr. Pam Paulsen, Plaintiff, v. James and Michelle Anderson, Total Service Company, Moisture Warranty Corporation, Stephen P. Donnelly, Stephen Donnelly Company, Inc., Donnelly Brothers Construction Company, Inc., and Edina Realty, Inc., Defendants.
CourtMinnesota District Court

George LeTendre, Esq., appeared for and on behalf of Defendants James and Michelle Anderson.

Alan King, Esq., appeared for and on behalf of Defendant Total Service Company.

Amy Schwartz, Esq., appeared for and on behalf of Dr. Pam Paulsen.

ORDER GRANTING PLAINTIFF PAULSEN'S MOTION AMEND HER COMPLAINT AND DENYING DEFENDANT ANDERSONS' MOTION FOR SUMMARY JUDGMENT.

GARY LARSON, Judge.

The above entitled matter came before the Honorable Gary Larson, Judge of Hennepin County District Court, on January 8, 2008, on Defendants James and Michelle Anderson's motion for summary judgment, and on January 29, 2008, on Plaintiff's motion to amend the complaint to add claims of fraud and mistake against Defendants James and Michelle Anderson.

Based upon all files, records, and proceedings herein, together with the arguments of counsel,

IT IS HEREBY ORDERED:

1. Plaintiff Pauslen's motion to amend her complaint is GRANTED.

2. Defendant Andersons' motion for summary judgment is DENIED.

3. That the attached memorandum shall be made a part hereof.

MEMORANDUM
I. FACTUAL BACKGROUND
A. INSPECTION AND PURCHASE.

On May 12, 2003, Dr. Pam Paulsen ("Paulsen") submitted to James and Michelle Anderson ("Andersons") a purchase agreement containing an offer to purchase the Andersons' home on Medicine Lake ("the Home") for $930,000. Phil Rustad ("Rustad") of Edina Realty, Inc. ("Edina Realty') was Paulsen's agent in this transaction. Paulsen's offer was contingent upon the Home passing a "complete home inspection" and a "complete stucco inspection—invasive type."

On May 16, 2003, Paulsen hired Private Eye, Inc. ("Private Eye") to conduct an invasive moisture intrusion inspection of the Home; the results of which were detailed in a Moisture Analysis Report ("MAR"). Of the ninety-one tests that Private Eye performed on the Home, 45 of those spots tested had a moisture reading between 11 to 19 percent. According to Private Eye, this amount of moisture indicates some moisture intrusion and that modifications may be needed. Another 46 of the areas tested had moisture readings in excess of 20%. Readings in excess of 20%, according to Private Eye, indicates excessive moisture, and could indicate structural damage that might further require the wall assembly to be opened and examined. After receiving Private Eye's report, Rustad informed the Andersons that Paulsen was prepared to:

go ahead with the transaction at the agreed upon price if you are willing to do further testing and repair as indicated by the stucco inspection.... Basically, to make the house right.... While I am not your Realtor, I can advise you that you are now in possession of material facts concerning the value and future of the property and that, under Minnesota law, you must disclose them to any future buyer. With that in mind, it may be in your best interest to at least go ahead with the investigation process to determine how extensive the problem is and, as you have indicated a willingness to do in previous discussions, fix it for this buyer.

Stemming from Private Eye's report, Rustad recommended to Paulsen that she include a MoistureFree Warranty ("MFW") from Moisture Warranty Corporation ("MWC") as another condition to her purchasing the Home.

In late May of 2003, Paulsen, Rustad, the Andersons, a representative of Private Eye, and a representative of Total Service Company ("TSC"), a company brought in by the Andersons to evaluate and repair their home, met to discuss the moisture issues of the home. TSC's testing, which consisted of removing portions of the stucco, revealed that the Home had suffered from water damage. Paulsen and the Andersons orally agreed to a plan to repair the Home, including: a) modification and/or repair of the areas of moisture intrusion as identified in the MAR; and b) repair of the Home such that it qualified for a MFW from MWC. TSC began work on the Home on June 4, 2003. For the stucco work, TSC hired Donnelly Brothers Construction Company, Inc., ("Donnelly").

On June 9, 2003, MWC conditionally approved the Home for a MFW. Prior to doing so, however, MFW required that various repairs, those that would prevent future moisture intrusion, be made to the Home. TSC only repaired those items identified by MWC in the June 9 letter of approval. TSC did not repair the other areas identified in the MAR. Paulsen did not know that TSC did not perform the latter repairs. Apparently TSC may have not done this work based on instruction from the Andersons. This included, apparently, being instructed to ignore completely certain areas of the Home that had moisture readings of 11% to 19%. Either way, TSC only satisfied the work required by MFW and not those of the MAR. While working on the Home, TSC also neglected to pull any of the required permits.

On June 10, 2003, Paulsen prepared and submitted a proposed amendment to purchase agreement to the Andersons ("June 10 Amendment"). In relevant part, the June 10 Amendment stated:

Buyer agrees to proceed with transaction and removes all contingencies. Seller agrees to complete restoration work to [re]mediate water damage. All restoration work to be done to standards required to warranty the entire house against future water intrusion damage by Moisture Warranty Corporation. Seller also agrees to fund and transfer to Buyer the five (5) year $150,000 total limit and $30,000 annual limit warranty from Moisture Warranty Corporation. Buyer and Seller agree to change the closing date to July 24, 2003.

The Andersons accepted the June 10 Amendment in part and rejected it in part. They disagreed with the requirement that they fund and transfer a warranty for the home from MWC. The Andersons also added the following: "[i]f the restoration work is not completed by the closing date, Buyer and Seller agree to close on the closing date and Seller agrees to escrow an amount equal to the amount that the restoration contractor estimates it necessary to complete the restoration work." Thus, the Andersons agreed to complete restoration work to remediate water damage and to make sure that the house would qualify for a MFW from MWC, though the Andersons would not pay for such a warranty.

On June 18, 2003, Rustad drafted another amendment to the purchase agreement ("June 18 Amendment"). The June 18 Amendment, where germane, states that:

Buyer and Seller agree to go forward with the above referenced Purchase Agreement with following changes and additions: Change closing date to July 24th, 2003[.] Seller agrees to complete all the repair and restoration work currently underway to a standard which will qualify the home for a non-exclusive moisture damage warranty from the Moisture Warranty Company. This work to be completed and approved for warranty by the Moisture Warranty Company prior to close. If the work is not completed, or warranty not approved by the close date set above, both parties agree to re-negotiate the closing, not to be later than August 29th, 2003.

Paulsen closed on the Home on July 24, 2003. On the same day, MWC approved the Home for a MFW. Apparently, at the time of closing, Paulsen believed that the promised repairs had been made and that the Home was moisture-free. According to Paulsen, had she known that the Andersons had not completely remediated the Home's past water damage, she would not have gone through with her purchase.

B. FOLLOW-UP INSPECTION

On June 1, 2005, Private Eye re-inspected the Home as part of the MFW service plan. In these inspections, Private Eye discovered that various areas of the Home were suffering from excessive moisture intrusion. According to Private Eye, many of the areas that were purportedly and actually repaired by TSC in 2003 were still bathing in excessive moisture intrusion in 2005.

On May 17, 2007, Paulsen brought in Advanced Consulting & Inspecting ("ACI") to perform an invasive moisture intrusion inspection of the Home. ACI's inspection revealed that the Home "exhibited evidence of moisture intrusion and structural damage at the interior and exterior." Based on their inspection, ACI recommended that the stucco and sheathing be removed from the damaged areas of the Home and that the structural damage to the Home's framing be repaired as well.

In October of 2007, Paulsen hired Robert Gary Builders ("RGB") to work on the Home. According to RGB, while working on the Home they discovered lingering moisture damage in areas that were supposedly fixed by TSC and that would have been remediated had the MSR been followed. RGB uncovered, for example, an instance where TSC covered moldy rotten framing with clean plywood sheathing. This both trapped the mold and moisture into the walls of the home and disguised the fact that the issue still persisted. Paulsen has an estimate that it will cost $187,300.00 to repair the Home.

II. PLAINTIFF'S MOTION TO AMEND HER PLEADINGS TO INCLUDE CLAIMS OF FRAUD AND MISTAKE IS GRANTED.

Paulsen moves to amend her complaint against the Andersons so as to add a claim of fraud and mistake. She argues that she should be allowed to amend her complaint because a) her amendment is timely; b) the Andersons will not be prejudiced by the amendment; and c) her claims are legitimate. The Andersons oppose this Court granting leave to amend, arguing that 1) Paulsen is seeking amendment now, only because the Andersons asserted the doctrine of merger as a defense in their summary judgment; and 2) that Paulsen hasn't met the threshold of a fraud claim; and 3) that Paulsen's claim of fraud cannot survive summary judgment.

A. Standard for amendment of pleadings.

Paulsen seeks the permission of this Court to...

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