COA: Arbitration order for homebuilder, owner ‘premature’ in plumbing dispute

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A Lawrence couple will not be compelled to arbitration over a sewage dispute with their homebuilder at this time, the Indiana Court of Appeals ruled in a Friday reversal, finding an order to do so by the Marion Superior Court was “premature.”

Not long after purchasing a home in 2017 built by M/I Homes of Indiana, Nathan and Jamie Reitenour noticed peculiar sounds coming from their toilets after being flushed.

A nightmare every homeowner dreads ensued the next day: Sewage began backing up through the shower drain and toilets on the home’s main floor. The Reitenours reported the issue to M/I Homes and contacted two different plumbing companies, but the issue couldn’t be fixed.

Meanwhile, the Reitenours requested and received a copy of the homebuilder’s limited warranty. But it was a subsequent public records request to the city of Lawrence that turned up surprising news for the Reitenours — their home’s lowest elevation was too low relative to the elevations of the nearby manholes for the city to grant a sanitary sewer connection permit, absent execution by the property owner of a covenant to run with the land releasing the city from liability for sewer backup into the building.

They also learned about a 2016 covenant made between M/I and the city that wasn’t recorded by the Lawrence utility superintendent until March 2018 — after the Reitenours had submitted their request. The covenant states that “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[.]”

The couple sued M/I Homes, the Utilities Service Board of Lawrence and the city for fraud and breach of contract, arguing that because the parties failed to disclose that information, their home was in violation of Lawrence Municipal Code § 5-1-2-1(B) and, therefore, susceptible to sewage backup.

After accepting the interlocutory appeal, the Indiana Court of Appeals on Friday reversed a previous order from the Marion Superior Court that granted M/I Homes’ motion to stay the amended complaint and compel arbitration on the basis that the purchase agreement and warranty required the Reitenours’ claims against the company to be submitted to arbitration.

It noted that M/I Homes filed its motion to compel arbitration in reliance upon substantive provisions of the Indiana Uniform Arbitration Act, declining to cite the Federal Arbitration Act or assert that the contract falls under the FAA.

Under state law, if a party challenges the validity of the contract as a whole, a court is to rule on the validity of the contract before sending the matter to arbitration. But if a dispute arises under a ratified contract containing an arbitration clause, then the dispute is to be decided at arbitration.

Rather than filing a motion to compel the election of a remedy, the appellate court noted in Nathan L Reitenour and Jamie M. Reitenour v. M/I Homes of Indiana, L.P., the Utilities Service Board of the City of Lawrence, Indiana, and the City fo Lawrence,  21A-CT-103, that M/I Homes filed a motion to compel arbitration, effectively asking the trial court to limit the Reitenours to the remedy of damages.

“Yet, the defendant is not at liberty to choose a remedy for the plaintiff,” Judge Melissa May wrote for the appellate panel. “… All in all, we hold that the order compelling arbitration was premature. That is, unless the Reitenours conclusively elect the remedy of damages, it is improper to enforce the arbitration clause and order arbitration.”

The Court of Appeals therefore reversed and remanded for further proceedings, adding in a footnote that the Reitenours’ case arose because the city enacted Municipal Code §  5-1-2-1(B) in the first place.

“We question the public policy objective of an ordinance that invites sewage backup for generations to come, contravening a basic tenet of government: to provide for the health and safety of its citizens,” the court wrote. “… We also find it curious that, as alleged, the covenant — of keen interest to the public — was not recorded upon execution but promptly was recorded (without notice to the Reitenours) after the Reitenours made a public records request and discovered its existence.”

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