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Maine Homebuilder Held Liable for Unfair Trade Practices on Basis of Construction Defects
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March 19, 2007
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Thelen Reid Brown Raysman & Steiner LLP
A developer and his company have been found in violation of Maine's Unfair Trade Practices Act because their business practice consisted of a pattern of building defective homes and misrepresenting the quality of the homes to the buyers.
In the early 1990s, Fredric D. Weinschenk and his company, Ric Weinschenk Builders, Inc., developed a plan to create moderately priced, compact, custom-designed, single-family homes in Maine. Their business practice was to have buyers contract directly with RWB for the construction work and to meet individually with Weinschenk so he could personally design the houses in each development. Weinschenk built several such housing developments.
Some buyers were pleased with their new homes. Others, however, reported severe leaks from the windows and roofs, bursting pipes, leaking toilets, and cracks in tile and foundations. The complaints prompted Maine's Attorney General to investigate. The Attorney General's office found several common defects. As a result, the state sued Weinschenk and RWB for violating Maine's Unfair Trade Practices Act (5 MRSA §§205A, et seq.), which authorizes the attorney general to bring an action when business transactions display a common pattern of unfairness or deceit.
At trial, the attorney general established a pattern of substandard construction practices, such as leaky roofs, leaky windows and building code violations, and marketing practices that did not disclose the defective nature of the homes. Based on these patterns and practices, the trial judge found that Weinschenk, as an individual, and RWB, as a company, jointly violated the Unfair Trade Practices Act by selling houses that were defective, failing to comply with generally accepted construction practices and misrepresenting to consumers the quality of the construction of the houses.
The court ordered Weinschenk and RWB to pay $221,256 in restitution to nine homeowners - four of whom were direct purchasers from Weinschenk and RWB and five of whom were indirect purchasers. In addition, the judge issued an injunction requiring Weinschenk and RWB to meet a number of requirements before building any more residential homes in Maine, including having an engineer review all plans for code compliance.
Maine's Supreme Judicial Court partially affirmed the trial court's decision. State of Maine v. Weinschenk, 868 A.2d 200 (Me. 2005). The court rejected the defendants' argument that attorney general could not bring an Unfair Trade Practices Act case based on separate individual home sales contracts. The court agreed that the defendants had engaged in unfair or deceptive conduct, noting that the defects caused substantial injury, that consumers could not have reasonably avoided the injury and that there were no counterveiling benefits from defendants' conduct. Defendants' advertisements and personal contacts likely affected consumers' purchasing decisions.
The court agreed that Weinschenk's personal liability could not be shielded by his company because he engaged in direct personal dealings with each of the original buyers and he personally designed the homes defectively. Moreover, Weinschenk, as the principal representative of RWB, had direct, personal dealings with each of the direct buyers and personally misrepresented the quality of the homes. RWB also was thinly capitalized and insolvent at the time of trial. As a matter of equity, there was no distinction or separation between Weinschenk as an individual and RWB as a company. Accordingly, Weinschenk could not hide his personal liability behind his company.
The Supreme Judicial Court, however, disagreed with a portion of the trial court's ruling. It distinguished direct purchasers from indirect purchasers and ruled that indirect purchasers were not entitled to restitution because they did not deal directly with those engaged in the unfair trade practice or activity. There was no evidence that the indirect purchasers relied on Weinschenk's or RWB's misrepresentation or were harmed by Weinschenk's or RWB's deceptive practices. Rather, indirect purchasers had the opportunity to inspect the houses before purchasing them and may have received a discounted price as a result of the defects. These differences allowed recovery of restitution by the direct purchasers but not by indirect purchasers.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2007 Thelen Reid Brown Raysman & Steiner LLP
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