Ruling on appeal reinstates condo owners’ suit alleging faulty construction

Condominium owners in a South Bend complex that they allege was shoddily constructed may pursue their claims against the insolvent developer, the Indiana Court of Appeals ruled, reversing the dismissal of the condo owners’ claims.

The case involves the Ivy Quad 10-building, 68-unit condo complex in South Bend. Owners in 2017 began noticing crumbling concrete and water infiltration, among other problems, and sued defendants who eventually included Ivy Quad Development, its owner/developer David Matthews, general contractor Matthews LLC, and Matthews’ wife, Velvet Canada, who was involved in the design, construction, development and sale of units near the University of Notre Dame campus.

The condo unit owners hired an engineering firm to inspect and document defects, which ranged from improper construction of retaining walls to improperly poured concrete and numerous structural drainage problems, along with some code violations.

But in October 2019, the St. Joseph Superior Court granted the Matthews defendants’ motion to dismiss, which the COA reversed Friday in The Residences at Ivy Quad Unit Owners Association, Inc. v. Ivy Quad Development, LLC, et al., 19A-PL-2974. The appellate panel remanded the case for proceedings after finding dismissal of the implied warranty and negligence claims against the Matthews defendants was improper.

Judge Terry Crone wrote for the panel that the trial court improperly relied on the economic loss doctrine to dismiss the claims, particularly as expressed in Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 727 (Ind. 2010).

“… (W)e are persuaded that the reasoning behind and sweeping holding of Indianapolis-Marion County Public Library was meant to apply only to sophisticated parties involved on all sides of large commercial construction projects and not in the typical residential construction context. Our supreme court used the term ‘major construction project’ throughout its opinion, underscoring that the use of the doctrine as a shield by a defendant without contract privity should be limited to such,” Crone wrote.

“We do not think our current supreme court would be inclined to apply the economic loss rule to leave plaintiffs remediless in cases where contract privity between the buyer and the majority of the construction professionals is understandably lacking, especially those concerning much smaller residential construction projects,” Crone continued. “The economic loss doctrine was never meant to operate as a sword to be used by defendants to attack a plaintiff’s tort claim that falls wholly outside of contract law.

“We conclude that the trial court’s application of the economic loss doctrine as a complete bar to the HOA’s negligence claim against the Matthews Defendants was both premature and unwarranted,” the panel concluded, adding in a footnote that the HOA’s claim of general negligence survives and the HOA “alleged sufficient facts in its amended complaint to support a claim of negligence per se.”

“We therefore reverse the trial court’s dismissal order, specifically as it pertains to counts I through III of the HOA’s Third Amended Complaint, and we remand for further proceedings.”

The case has drawn the attention and support of amici on both sides — the Indiana Trial Lawyers Association for the plaintiffs and the Indiana Builders Association for the defendants.