The city of Gloucester’s famous Fisherman’s Memorial. Oceanfront living comes with high prices and potential risks from Mother Nature. iStock photo
What do you get when you combine a 100-year-old former oceanside inn, an inexperienced luxury home developer and a wealthy out-of-state buyer? You get a lawsuit in a Massachusetts federal court.
In 2018, 171 Atlantic Road LLC, a Massachusetts limited liability company controlled by Bryan Melanson, bought the former Ocean View Inn on Eastern Point in Gloucester. Melanson planned to redevelop the inn into a luxury home, though he lacked experience in restoring abandoned buildings and developing oceanside properties. He rehabilitated the main building as a 7,800-square-foot home, and sold it in 2020 for $4.7 million to a Delaware limited liability company based in Illinois controlled by Ronald Berman, who intended to use the home as his primary residence.
The purchase-and-sale agreement between the parties included detailed punchlists of items for the seller to address, such as water seepage at the bulkhead and radon gas. The agreement also contained a one-year limited warranty for 171 Atlantic’s work. After purchasing the property, Berman had numerous complaints about defects with the property, including water ponding that damaged floors and drywall, defective gutters, a leaky roof and windows, building code violations and high radon gas levels.
When 171 Atlantic failed to cure defects and complete punchlist items, Berman filed suit in federal court in Massachusetts. The federal court had jurisdiction over the dispute because Berman and 171 Atlantic are considered citizens of different states, and Berman’s claim exceeded $75,000. Berman’s lawsuit alleged that water intrusion rendered the luxury home uninhabitable. The complaint included counts for breach of contract, breach of warranty and breach of the implied warranty of habitability.
Both parties filed cross-motions for summary judgment, which the court ruled on last April. In its decision, the court first considered whether 171 Atlantic breached the purchase-and-sale agreement. The court noted that 171 Atlantic failed to repair punchlist items, including radon gas mitigation. 171 Atlantic did not convincingly refute Berman’s claim that the property had building code violations. The court ruled in favor of Berman on his breach of contract claim.
Leaky Plumbing Breached Warranty
The court then turned to Berman’s breach of warranty claim, which was based on the limited warranty attached to the purchase and sale agreement. The court observed that the limited warranty covered leaks resulting from plumbing problems and floor defects caused by water damage. However, the court was unwilling to rule in favor of Berman on the claim that the limited warranty covered a leaky roof, because it was unclear whether those leaks occurred within the one-year warranty period. Therefore, the court only ruled for Berman on his breach of warranty claim for the leaky plumbing and defective flooring.
The court next discussed Berman’s breach of the implied warranty of habitability claim. Under Massachusetts law, this claim required Berman to show that (i) he purchased a new home from a builder, (ii) the home contained a latent defect, (iii) the defect revealed itself only after the purchase, (iv) the defect was caused by the builder’s improper design, material or workmanship, and (v) the defect caused safety problems or rendered the home uninhabitable.
The court first determined that Berman’s property was, in effect, a new home, because of the high degree of demolition and reconstruction performed on the refurbished inn. The court also ruled that the pervasive water infiltration was a latent defect that was not discoverable until after Berman occupied the home and experienced weather conditions leading to the infiltration.
Christopher R. Vaccaro
The court next concluded that the water problems arose from 171 Atlantic’s defective design, materials or workmanship, because 171 Atlantic undertook a total build-out of the home, installing new flooring, plumbing, electrical systems, bathrooms, exterior roofing, siding and windows. If those components had been properly designed and installed, there would have been no water infiltration. The court found that the amount of water infiltration, especially during the winter, rendered the home uninhabitable, and granted Berman’s motion for summary judgment on his breach of implied warranty of habitability claim. The court denied 171 Atlantic’s cross-motions for summary judgment.
After this setback, 171 Atlantic filed a Chapter 7 bankruptcy petition. The bankruptcy will likely result in a discharge of all of 171 Atlantic’s debts, including whatever it owes Berman as a result of the lawsuit.
Berman misplaced his faith in 171 Atlantic’s competence to rehabilitate a former oceanside inn to modern standards. Given that the North Atlantic is a ruthless neighbor, those desiring to live near it must carefully choose the right builders and design professionals, to avoid disastrous results.
Christopher R. Vaccaro is a partner at Dalton & Finegold LLP in Andover. His email address is cvaccaro@dfllp.com.
