Reitenour v. M/I Homes of Ind., L.P.

• Decision Date: 20 August 2021
• Docket Number: Court of Appeals Case No. 21A-CT-103
• Citation: 176 N.E.3d 505
• Parties: Nathan L. REITENOUR and Jamie M. Reitenour, Appellants-Plaintiffs v. M/I HOMES OF INDIANA, L.P., the Utilities Service Board of the City of Lawrence, Indiana, and the City of Lawrence, Appellees-Defendants
• Court: Indiana Appellate Court

176 N.E.3d 505

Nathan L. REITENOUR and Jamie M. Reitenour, Appellants-Plaintiffs

v.M/I HOMES OF INDIANA, L.P., the Utilities Service Board of the City of Lawrence, Indiana, and the City of Lawrence, Appellees-Defendants

Court of Appeals Case No. 21A-CT-103

Court of Appeals of Indiana.

FILED August 20, 2021

Attorney for Appellants: Jeffrey O. Meunier, Carmel, Indiana

Attorneys for Appellees: J. Greg Easter, Matthew B. Millis, Elizabeth A. Huffman, Easter & Cavosie, Carmel, Indiana

May, Judge.

[1] Nathan L. Reitenour and Jamie M. Reitenour (collectively, "the Reitenours") appeal the trial court's order staying proceedings and compelling arbitration in their suit against M/I Homes of Indiana, L.P. ("M/I Homes").¹ The Reitenours argue the trial court erred in granting M/I Homes’ motion to compel arbitration. Because it is unclear from the Reitenours’ 37-page (excluding attachments) pro se complaint whether they seek recission of the entirety of their contract with M/I Homes or of only the arbitration agreement, and because that decision determines whether the Reitenours’ fraud in the inducement claim is determined by the trial court or in arbitration, respectively, we reverse the trial court's order compelling arbitration and remand for further proceedings.

Facts and Procedural History

[2] M/I Homes constructed a new house ("the Residence") in Lawrence, Indiana, and the Reitenours decided to purchase the Residence. On April 13, 2017, Nathan Reitenour and Alan White, the M/I Homes Project Manager, executed a purchase agreement in which the Reitenours agreed to buy the Residence for $426,000.00. The purchase agreement included an arbitration clause, which stated:

Arbitration . Purchaser and M/I specifically agree that this transaction involves interstate commerce and that any Dispute shall be submitted to binding arbitration as provided by the Federal Arbitration Act and not by or in a court of law or equity. Such arbitration shall be in accordance with the provisions of the Arbitration Agreement contained in the Home Builder's Limited Warranty (PWC Form No. 117), which arbitration agreement is incorporated into the Agreement by reference. If it is determined that the provisions of the Arbitration Agreement contained in the Home Builder's Limited Warranty (PWC Form No. 117) do not apply to the Dispute, then the Dispute shall be submitted to binding arbitration and administered by the American Arbitration Association ("AAA") in accordance with the AAA's arbitration rules in effect on the date of the request. The term "Dispute" (whether contract, warranty, tort, statutory, or otherwise) shall include, but is not limited to, any and all controversies, disputes or claims: (i) arising under, or related to the Agreement, the Property, the Community, the Warranty or any dealings between Purchaser and M/I; and (ii) relating to personal injury or property damage alleged to have been sustained by Purchaser, Purchaser's minor children or other occupants of the Home, or in the Community. Notwithstanding the parties’ obligation to submit any Dispute to arbitration, in the event that a Dispute is determined to not be subject to binding arbitration, then the parties agree that any such Dispute shall be heard by a judge in a court proceeding and not a jury and Purchaser and M/I each hereby waive their respective right to a jury trial. The term "Dispute" shall not include claims brought under § 14(h) of this Purchase Agreement (Interstate Land Sales Act).

(App. Vol. II at 58 (emphasis in original).) The home builder's limited warranty ("Warranty"), which was incorporated into the purchase agreement by reference, expanded upon the arbitration clause in the Purchase Agreement by stating, in part:

Following commencement of the WARRANTY PERIOD , any claim, controversy or dispute (hereafter collectively referred to as "dispute") between YOU and US , or parties acting on YOUR or OUR behalf, including PWC ,^{[2 ]} and any successor, or assign of either YOU or US which relates to or arises from this LIMITED WARRANTY , or the design or construction of the HOME or the COMMON ELEMENTS , or the sale of the HOME or transfer of title to the COMMON ELEMENTS , will be resolved solely by binding arbitration and not through litigation in court before judge or jury. This agreement to arbitrate is intended to inure to the benefit of, and be enforceable by, OUR contractor, subcontractors, agents, vendors, suppliers, design professionals, materialmen, and any of OUR direct or indirect subsidiaries or related entities alleged to be responsible for any CONSTRUCTION DEFECT .

(Id. at 136 (emphases in original).) The Warranty then listed several categories of disputes subject to binding arbitration and designated an alternative dispute resolution firm to conduct the arbitration.

[3] On June 12, 2017, the Reitenours "began noticing strange sounds when the toilets were flushed." (Id. at 18.) The next day sewage began backing up through the shower drain and toilets on the Residence's first floor. The Reitenours reported the issue to M/I Homes. Two plumbing companies visited the Residence on June 13, 2017, to evaluate the problem, but neither company could resolve the issue. The Reitenours also hired a cleanup and restoration service to remove the backed-up sewage. After experiencing these plumbing problems, the Reitenours requested and received a copy of the Warranty from M/I Homes. The Reitenours allege that this was the first time a copy of the Warranty was given to them.

[4] Through documents the Reitenours received in response to a public records request they made to the City of Lawrence, the Reitenours learned that the Residence's lowest elevation was too low relative to the elevations of the nearby manholes for the City of Lawrence to grant a sanitary sewer connection permit, absent execution by the property owner of a covenant to run with the land releasing the City of Lawrence from liability for sewer backup into the building.³ The Reitenours also learned that M/I Homes and the City of Lawrence entered into a covenant in September 2016 whereby, "in consideration of a release of liability, the City will permit the connection of a sanitary sewer lateral on the above-described property to the City sanitary sewer system notwithstanding that such connection is not in compliance with prevailing requirements[.]" (Id. at 85.) However, this covenant was not recorded by the Lawrence Utility Superintendent until March 1, 2018.

[5] The Reitenours, proceeding pro se, filed a complaint against M/I Homes, the Utilities Service Board of Lawrence, and the City of Lawrence on September 18, 2020, and they amended their complaint on October 15, 2020. The amended complaint alleges:

21) As a direct result of failure of M/I and Lawrence to disclose and record the Covenant, neither Reitenour, nor the Title Company, had knowledge that the Covenant ran with the property at the time Reitenour closed on the purchase of the Reitenour Residence, and that the Reitenour Residence was in violation of LMC 5-1-2-1(B) making the Residence susceptible to sewer back up.

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COUNT I

FRAUD/CONSTRUCTIVE FRAUD

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91) M/I induced Reitenour to enter into the Contract by failing to disclose that M/I did not intend to build in accordance with local building code requirements, and making false representations that M/I would build above and beyond standard building codes.

92) Reitenour relied upon M/I's misrepresentation and concealments by entering in to the contract and purchasing the home, and Reitenour would not have purchased the Reitenour Residence had the "elevation violation" and all of the other code violations not been concealed by M/I, at the time.

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COUNT II

BREACH OF CONTRACT

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122) Had the Plaintiff known of the prior Covenant Agreement M/I had with Lawrence to build the Reitenour Residence with an "elevation violation" making the Residence susceptible to sewer back flow; Reitenour would not have purchased the Reitenour Residence.

123) The Prior Agreement and the continuous concealment of the agreement by M/I, (and Lawrence), renders the current agreement irreparably broken, and unconscionable under the circumstances, the law, and the wording in the Purchase Contract between M/I and Reitenour.

124) M/I breached its contract with Reitenour, as established by the Purchase Contract, Permits, and the law, and as a direct and proximate result of M/I's Breach of Contract, Reitenour has a home with an "elevation violation" of sewer code, in a City with sewer problems. Reitenour has no idea what other items are lurking behind the deceit. Reitenour has sustained economic losses, valuable time with family, and other damages for which they are entitled to compensatory damages in an amount to be proven at trial.

COUNT III

FRAUD IN THE INDUCEMENT OF THE ARBITRATION CLAUSE

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168) Reitenour was fraudulently induced by M/I withholding information that benefited M/I to the detriment of Reitenour, given the fact that the terms in [the Warranty] are extremely biased and favoring towards M/I.

169) M/I's blatant and reckless disregard in failing to disclose and in concealing such material adverse information, resulted in an unfair and unconscionable advantage over Reitenour for which Reitenour is entitled to have the entire arbitration clause and limitations thereof, rendered ineffective, the agreement irreparably broken, and unconscionable under the circumstances, and the Law, and should result in the recission of the arbitration clause, (this said contract.)

COUNT IV

FRAUD IN THE EXECUTION OF THE ARBITRATION CLAUSE

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175) Reitenour did not assent to the entirety of the proposed contract, (arbitration clause) due to the fact that Reitenour was never given the entirety of the proposed contract.

176) This misrepresentation of the arbitration clause being given in its entirety, when it was not the entire arbitration agreement, renders Reitenour's conduct not effective as a manifestation of

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