Ward Corporation

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IN THE MATTER OF WARD CORPORATION, ET AL.

CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket .9160. Complaint, March 1982-Decision, April 5, 1985 This Consent Order, among other things, requires five Rockville, Maryland builders and sellers of residential housing, together with a corporation offcer, to cease failing to fully honor valid warranty claims within a reasonable period of time; representing that materials are defect-free, unless defects due to faulty material workmanship or design are corrected or remedied within a reasonable period of time; failing to provide purchasers with building lots substantially conforming to the physical characteristics represented by the seDers; and failing to disclose, prior to the signing ofa sales contract, all disclaimers or limitations of the firms' responsibilities with regard to the physical condition of the lot. The text of all written warranties must be clearly and conspicuously displayed in sales offces and model homes, and a copy of such warranties must be pnJvided to prospective buyers if requested. In addition, the firm.!? are required to provide future purchasers with an opportunity to arbitrate warranty disputes; provide arbitration to homeowners who had purchased their homes in the year preceding the effective date of the order; and, subject to conditions set forth in the order, provide repairs and/or payments to qualified homeowners who had purchased their homes between March 10, 1978 and a date one year prior to the effective date of the order, and who stil own these homes.

Appearances For the Commission: Miriam Daniels, Louise R. Jung, Karen Egbert, Anne Maher and Richard C. Donahue. For the respondents: Mitchell S. Cutlerand Michael E. Kris, Finley, Kumble, Wagner, Heine, Undedberg Casey, Washington, D.C. and Robert A. Skitol, Steven K. Yablonski and Jane Seigler, Wald, Harkrader Ross Washington, D.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act as amended, and by virtue of the authority vested in it by said Act the Federal Trade Commission, having reason to believe that respondents Ward Corporation, R.E. Ward, Inc., Ward Development Company, Inc., Ward Component Systems, Inc., Richlynn Development, Inc. Richlynn Land Developers, Inc., corporations, and Richard E. Ward, individually and as an offcer of said corporations, hereinafter some- .. i-n n,. ..",,...,,,, ./.- "h'H" u l..t.... th.. ....nH H''' ryfQ':-i 250 Complaint Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: I. RESPONDENTS PARAGRAPH 1. Respondent Ward Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland, with its offce and principal place of business located at 1300 Piccard Drive, Rockville, Maryland. Respondents R.E. Ward Inc., Ward Development Company, Inc. and Ward Component Systems, Inc., are wholly-owned subsidiaries of respondent Ward Corporation, and are corporations organized, existing and doing business under and by virtue of the laws of the State of Maryland, with their offce and principal place of business located at 1300 Piccard Drive, Rockville, Maryland. Respondents Richlynn Development, Inc. and Richlynn Land Developers, Inc., are wholly-owned subsidiaries of respondent Ward Corporation, and are corporations organized, existing and doing business under and by virtue of the laws of the State of Virginia, with their offce and principal place of business located at 1300 Piccard Drive Rockvile, Maryland.

Respondent Richard E. Ward is an individual and is the principal offcer and director of the corporate respondents. He formulates, directs and controls the acts and practices of the corporate respondents including the acts and practices hereinafter set forth. His business address is the same as that of the corporate respondents. II. NATURE OF TRADE AND BUSINESS PAR. 2. Respondents are now, and for some time past have been engaged in: the construction of housing; the manufacture of pre-fabricated components and component systems, lumber products and other building materials for use in housing; the development ofland on a finished lot basis; the improvement, repair or modification of housing; the advertising, offering for sale and/or sale of the abovementioned property, goods or services to the public; and other like or similar activities.

III. JURISDICTION PAR. 3. In the course and conduct of their business, respondents cause, and for some time past have caused, their property, goods and services to be offered for sale and sold in Maryland, Virginia and other States to purchasers and prospective purchasers located in Maryland, Virginia and various other States ofthe United States and 252 FEDERAL TRADE COMMISSION- DECISIONS Complaint 105 F.

the District of Columbia by means of advertisements placed in newspapers of interstate circulation.

Respondent Ward Corporation provides, and for some time past has provided, its subsidiary companies incorporated and doing business in Maryland and Virginia with administrative, financial and accounting services, and in-house data processing facilities. Respondent R.E. Ward, Inc., subcontracts, and for some time past has subcontracted, its housing construction services to its affliates in Maryland and Virginia.

Respondents Ward Development Company, Inc., and Richlynn Development, Inc., are now, and for some time past have been, engaged in the offering for sale and sale of housing to purchasers and prospective purchasers residing in various States ofthe United States and the District of Columbia.

Respondent Ward Component Systems, Inc., is now, and for some time past has been, engaged in the manufacture, sale, and distribution of building components and materials from its plants in Maryland, Virginia and Delaware to customers located in various States of the United States and the District of Columbia. Respondent Richlynn Land Developers, Inc., is now, and for some time past has been, engaged in the development of land in various States in the United States.

In addition, respondents cause, and for some time past have caused their advertising material, contracts, and various business papers to be transmitted by means ofthe United States mail from their places of business in Maryland and Virginia to purchasers and potential purchasers in various other States ofthe United States and the District of Columbia. Respondents maintain, and at all times mentioned herein have maintained, a substantial course of trade in said property, goods and services in or affecting commerce, as "commerce " is defined in the Federal Trade Commission Act, as amended. IV. ACTS AND PRACTICES: WARRANTIES PAR. 4. In the further course and conduct of their aforesaid business, respondents are now and have been, directly or implicitly, granting or disseminating certain warranties to purchasers of their aforesaid homes.

1. Respondents are now and have been disseminating a written warranty to purchasers of their aforesaid homes, under which warranty respondents warrant that they will correct (a) any defects due to faulty construction and/or defective materials, (b) specific defects including roofleaks, basement leaks, ir:adequate heating or air conditioning systems, excess settlement of finish grade, and (c) any patent WARD CORP., ET AL. ;:tj;j 250 mplaint defects noted at the time of final inspection, where such defects are reported to respondents before the end of one year from the date of possession or settlement, whichever occurs first. 2. Respondents are now and have been since approximately July 1976, by force of Maryland State law, warranting for a period of one year to purchasers oftheir aforesaid homes located in Maryland that at the time the home is completed it is (a) free from faulty materials (b) constructed according to sound engineering standards and in a workmanlike manner, and (c) fit for habitation, except that these warranties do not apply to any condition that an inspection of the premises would reveal to a reasonably diligent purchaser at the time the contract is signed.

3. Respondents are now and have been since approximately July 1979, by force of Virginia State law, warranting for a period of one year to purchasers of their aforesaid homes located in Virginia that the home, at the time of transfer of record title or the purchaser taking possession, whichever occurs first, is (a) suffciently free from structural defects, so as to pass without objection in the trade, (b) constructed in a workmanlike manner, so as to pass without objection in the trade, and (c) fit for habitation.

PAR. 5. By and through the granting and dissemination of such warranties, respondents have represented, directly or implicitly, that: 1. Respondents will correct, in a workmanlike manner, all defects within the scope of the written warranty disseminated to purchasers and wil complete these tasks within a reasonable time after they receive notice of the defects.

2. Respondents wil correct, in a workmanlike manner, all defects within the scope ofthe warranties implied under Maryland State law and will complete these tasks within a reasonable time alter they receive notice of the defects.

3. Respondents will correct, in a workmanlike manner, all defects within the scope ofthe warranties implied under Virginia State law and wil complete these tasks within a reasonable time after they receive notice of the defects.

PAR. 6. In truth and in fact, respondents have not fully performed their obligations under their written warranty and warranties implied under Maryland and Virginia State law. 1. In numerous instances, respondents have failed to correct, in a workmanlike manner, defects within the scope of their written warranty and/or warranties implied under Maryland or Virginia State law. Typical and illustrative of the uncorrected defects, but not all inclusive thereof, are:

_.. .

Complaint 105 F.TC.

a. Excessive vibration, sloping and/or sagging of floors, caused in part by the faulty construction of floor support systems; b. Uneven and inadequate heating of rooms, caused in part by the use of undersized heat pumps, faulty installation of heating ducts and omission of insulation;

c. Basement water leakage through walls, window wells and doors caused in part by the faulty installation of components, poor site grading and inadequate waterproofing;

d. Roof leaks, caused in part by the lack of building paper underneath the roofing shingles;

e. Excessive air and water infiltration in window areas, caused in part by the faulty installation, poor fit and/or poor design of windows and window frames;

f. Excessive cracking and settling of stoops, caused in part by the lack of a proper base under the stoops;

g. Excessive cracking and settling of driveways, caused in part by the improper application ofthe asphalt material and/or inadequate preparation of the underlying surface;

2. In numerous instances, where respondents, in a workmanlike manner, have corrected defects within the scope of the written warranty and/or warranties implied under State law, purchasers have encountered delays frequently exceeding six months from the time respondents received notice of the defect to the time respondents corrected the defect.

Therefore, the statements, representations, acts and practices relating to respondents' written warranty, as alleged in Paragraphs Four (1.) and Five (1. were and are deceptive. PAR. 7. Furthermore, respondents' failure to perform their obligations fully pursuant to their written warranty and warranties implied under State law has resulted in substantial injury to consumers. Therefore, the acts and practices as alleged in Paragraphs Four, Five and Six were and are unfai PAR. 8. Furthermore, respondents continued to grant or disseminate said warranties to purchasers of their aforesaid homes even though respondents knew or should have known of their failure to perform warranty obligations fully with respect to past purchasers homes. Under these circumstances, reasonably prudent businesspersons would have known that the acts and practices as alleged in Paragraphs Four, Five and Six were dishonest or fraudulent. Furthermore, such acts and practices have resulted in substantial injury to respondents' purchasers for which a court may grant relief pursuant to Section 19(b) of the Federal Trade Commission Act, as amended. PAR. 9. In the further course oftheir business, respondents are now .. l. - 1 10'70 ln'''H' 1._ H "u .L v~lU , J.l L".

250 Complaint Agreement of Sale" whereby purchasers agree to accept respondents' written warranty "in lieu of all other warranties whatsoever whether express or implied.

PAR. 10. By and through the inclusion ofthe aforesaid clause in the Agreement of Sale," respondents have represented, directly or implicitly, that purchasers have only those warranty rights provided by respondents and no other warranty rights, whether express or implied under State law.

PAR. 11. In truth and in fact, the aforesaid clause is clearly inapplicable, ineffective, invalid and/or unenforceable under Maryland and Virginia State law. Thetefore, the inclusion of this clause has the tendency or capacity to deceive or mislead purchasers as to their warranty rights and was and is unfair or deceptive. V. OTHER ACTS AND PRACTICES PAR. 12. In the further course and conduct of their aforesaid business, respondents are now and have been providing purchasers with an opportunity to inspect their homes prior to settlement while accompanied by respondents' representative and to . have all readily apparent defects or incomplete items listed on an "Orientation Inspeetion" sheet provided by respondents. In the further course and conduct of their business, respondents have represented, directly or implicitly, orally or in writing, that they wil correct or complete, in a workmanlike manner, as many items listed as possible prior to settlement, and/or will correct or complete, in a workmanlike manner, all items listed within a reasonable time after the pre-settlement inspection.

PAR. 13. In truth and in fact, respondents have not fully performed their obligations with respect to items listed by purchasers during the pre-settlement inspection.

1. In numerous instances, respondents have failed to correct, in a workmanlike manner, defects listed. Typical and ilustrative of the uncorrected defects, but not al1 inclusive thereof are the following: floor vibration; basement leaks; erosion of dirt under stoops; deterioration of driveways; damaged siding; poorly fitting storm windows; missing or loose roof shingles.

2. In numerous instances, respondents have failed to complete, in a workmanlike manner, al1 incomplete items listed. Typical and ilustrative of the incomplete items, but not all inclusive thereof, are the following: missing insulation; lack of grass coverage of the lot; presence of rocks and construction debris in the soil; unfinished and inadequate lot grading.

3. In numerous instances, where respondents, in a workmanlike p, Complaint 105 F.

manner, have corrected or completed items listed, purchasers have encountered long delays frequently exceeding six months from the time of the pre-settlement inspection to the time respondents corrected or completed the item.

Therefore, the statements, representations, acts and practices as alleged in Paragraph Twelve were and are deceptive. PAR. 14. Furthermore, respondents' failure to perform their obligations fully with respect to items listed by purchasers during the presettlement inspection has resulted in substantial injury to consumers. Therefore, the acts and practices as alleged in Paragraphs Twelve and Thirteen were and are unfair.

PAR. 15. Furthermore, respondents continued to engage in the acts and practices alleged in Paragraph Twelve even though respondents knew or should have known of their failure to perform obligations fully with respect to items listed during the pre-settlement inspection by past purchasers of their aforesaid homes. Under these circumstances, reasonably prudent businesspersons would have known that the acts and practices as alleged in Paragraphs Twelve and Thirteen were dishonest or fraudulent. Furthermore, such acts and practices have resulted in substantial injury to respondents' purchasers for which a court may grant relief pursuant to Section 19fb) of the Federal Trade Commission Act, as amended.

PAR. 16. In the further course and conduct of their aforesaid business, and for the purpose of inducing the public to purchase respondents' homes, respondents are now and have been including pictorial representations and written statements in their advertising brochures, sales documents and advertising inserted in newspapers of interstate circulation.

Typical and illustrative of said pictorial representations are Exhibits A , and attached hereto.

Typical and ilustrative of said written statements are the follow- Ing:

STANDARD FEATURES: Attractive Landscaping STANDARD FEATURES: Landscaping includes seeding and shrubs. You ll find split level and 2 story homes on beautiful lots all over a full acre. An inviting community of'traditional homes on beautiful \1 acre lots. The homes are surrounded by beautifully landscaped shade trees. Furthermore, respondents have built model homes which are open to the public. These homes are located on level lots which are fully grass-covered and landscaped.

PA u 17 Po" .:n .1 thrl"11tth tha trnnrla1 hnYnoC' ",.. rl +-1-.0 ronroC'.... WARD CORP.. E'f AL.

250 plaint tions and statements described in Paragraph Sixteen, and others of similar import and meaning not expressly set out therein, respondents have represented, directly or implicitly, that: 1. Respondents wil grade, in a workmanlike manner, the lots sold to purchasers of their homes.

2. Respondents wil remove rocks and construction debris from the lots.

3. Respondents wil provide suffcient topsoil so that purchasers can reasonably maintain landscaping on the lots. 4. Respondents will adequately protect trees on the lots during the construction process.

PAR. 18. In truth and in fact, respondents have not finished lots as represented.

1. In numerous instances, respondents have failed to grade lots in a workmanlike manner.

a. In numerous instances, respondents have failed to fill in ruts, depressions and holes created on the lots during the construction process.

b. In numerous instances, respondents have failed to provide adequate drainage on the lot, resulting in the presence of standing water over long periods of time and large muddy areas on the lots. c. In numerous instances, respondents have left steep inclines on the lots.

2. In numerous instances, respondents have failed to remove substantial amounts of rocks and construction debris from the lots. 3. In numerous instances, respondents have failed to provide suffcient topsoil, resulting in the purchasers' inability to reasonably maintain the landscaping on the lots.

4. In numerous instances, respondents have failed to protect adequately trees on the lots during the construction process, resulting in the destruction of the trees.

Therefore, the representations, statements, acts and practices as alleged in Paragraphs Sixteen and Seventeen were and are deceptive. PAR. 19. Furthermore, respondents' failure to finish Jots as represented to purchasers has resulted in substantial injury to consumers. Therefore, the acts and practices as alleged in Paragraphs Sixteen Seventeen and Eighteen were and are unfair. PAR. 20. Furthermore, respondents continued to engage in the acts and practices alleged in Paragraphs Sixteen and Seventeen even though respondents knew or should have known of their failure to finish lots as represented to past purchasers oftheir aforesaid homes. Under these circumstances, reasonably prudent businesspersons Complaint 105 F.

would have known that the acts and practices as alleged in Paragraphs Sixteen, Seventeen and Eighteen were dishonest or fraudulent. Furthermore, such acts and practices have resulted in substantial injury to respondents' purchasers for which a court may grant relief pursuant to Section 19(b) of the Federal Trade Commission Act, as amended.

PAR. 21. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been, and now are in substantial competition in or affecting commerce with corporations, firms, and individuals engaged in the sale and construction of residential housing.

PAR. 22. The use by respondents of the aforesaid unfair, false, misleading, or deceptive statements, representations, acts, and practices has had, and now has, the capacity and tendency to mislead members of the public into the erroneous and mistaken belief that said statements and representations were, and are, true and complete, or into the purchase of substantial numbers of respondents' houses by reason of said erroneous and mistaken belief PAR. 23. The aforesaid acts and practices of respondents, as herein alleged, were, and, are, all to the prejudice and injury of the public and of respondents' competitors, and constituted, and now constitute unfair or deceptive acts or practices in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act, as amended. Although respondents, in some of their sales contracts, provide for binding arbitration of disputes "arising under and pursuant to this Contract, or in any way related to the house and lot to be conveyed purchasers could not have reasonably avoided injury resulting from respondents' alleged unfair acts or practices. The availability of arbitration was not referred to in conjunction with respondents' presettlement or warranty procedures and was not raised by respondents at the time any dispute arose between respondents and purchasers or at the time any lawsuit was fied by a purchaser against respondents. Furthermore, many other sales contracts used by respondents did not provide for arbitration of disputes. For these and other reasons, the presence of the arbitration provision in some of respondents' sales contracts does not excuse respondents from liability for the unfair acts or practices alleged herein. The acts and practices of respondents as herein alleged, are continuing, and will continue, in the absence of the relief herein requested.

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250 Decision and Order DECISION" AND ORDER The Commission having theretofore issued its complaint charging the respondents named in the caption hereof with violation of Section 5 ofthe Federal Trade Commission Act, as amended, and the respondents having been served with a copy ofthat complaint, together with a notice of contemplated relief; and The respondents, their attorney, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by the respondents of all the jurisdictional facts set forth in the complaint, a statemcnt that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and The Secretary of the Commission having thereafter withdrawn this matter from adjudication in accordance with section 3.25(c) of its Rules; and The Commission having considered the matter and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, and having duly considered the comments fied thereafter by interested persons pursuant to section 3. 25 of its Rules, now in conformance with the procedure prescribed in section 3.25(1) of its Rules, the Commission hereby makes the following jurisdictional findings and enters the following order:

1. Respondents Ward Corporation, Ward Development Company, Inc., and Ward Component Systems, Inc. , are corporations organized existing and doing business under and by virtue of the laws of the State of Maryland, with their principal place of business located at 1300 Piccard Drive, in the City of Rockvile, State of Maryland. 2. Respondents Richlynn Development, Inc. , and Richlynn Land Developers, Inc., are corporations organized, existing and doing business under and by virtue ofthe State of Virginia, with their principal place of business located at 1300 Piccard Drive, in the City of Rockville, State of Maryland.

3. Respondent Richard E. Ward is an oflcer of each said corporate respondent, and his principal place of business is located at 1300 Piccard Drive, in the City of Rockville, State of Maryland. 4. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and ofthe respondents, and the proceeding is in the public interest.

Decision and Order 105 F. ORDER It is ordered That respondents Ward Corporation, Ward Development Company, Inc., Ward Component Systems, Inc., Richlynn Development, Inc., and Richlynn Land Developers, Inc., corporations, and respondent Richard E. Ward, individually and as an offcer of the corporations, their successors and assigns, and respondents' offcers agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the construction, advertising, ofiering for sale, or sale of any new singlefamily unit which is a detached structure, an attached or semi-attached townhouse unit or a twin unit (hereinafter referred to as residential home ) in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, as amended, do forthwith cease and desist from:

1. Representing, directly or by implication, that respondents wil correct, repair or otherwise remedy any defect due to faulty materials, workmanship or design unless respondents do, in fact, correct repair or otherwise remedy such defect within a reasonable period of time after receipt of a homeowner s valid request to do so. 2. Representing, directly or by implication, that the materials workmanship or design is defect-free or meets or will meet a specified level of performance, unless the representation is, in fact, true or, in the event of any defect or a failure to meet the specified level of performance, respondents do, in fact, correct, repair or otherwise remedy such defect within a reasonable period of time after receipt of a homeowner s valid request to do so.

3. Failing to honor fully every valid warranty claim within a reasonable period oftime after receipt ofa homeowner s request therefor; provided, however that nothing herein shall be construed as precluding respondents from denying or contesting a warranty claim believed in reasonable good faith to be without merit or, in such cases, from invoking any other rights provided by law.

4. Failing, whenever respondents represent, directly or by implication, that the lot offered to a purchaser wil have certain physical characteristics including, but not limited to, size, contours, drainage soil preparation, and seeding, to provide the purchaser with a lot conforming substantially to such representation. 5. Failing, prior to the time a sales contract for a new residential home is signed, to disclose clearly and conspicuously in writing to the 250 Decision and Order prospective purchaser all disclaimers or limitations of respondents responsibilities with regard to the physical condition of the lot. II.

It is further ordered, That respondents, in connection with the sale of any new residential home settled after the home is completed, do forthwith cease and desist from representing, directly or by implication, that respondents will correct or complete items listed on an Orientation Inspection Sheet" or any similar document" reflecting the results of the purchaser s pre-settlement inspection of the home unless respondents:

(a) prior to settlement, inspect the home with the purchaser and any accompanying person(s), including (if desired) an inspector chosen by the purchaser, and list every readily apparent problem or incomplete item on an Orientation Inspection Sheet or similarly designated document;

(b) correct or complete all such listed problems or items within one hundred and twenty (120) days of the inspection, subject to force majeure labor disruptions, or any other events reasonably beyond respondents' control, in which case respondents shall correct or complete such problems or items within a reasonable period of time; and (c) disclose to the purchaser clearly and conspicuously on a copy of the Orientation Inspection Sheet or similarly designated document provided to the purchaser that, subject to events reasonably beyond respondents' control, all listed problems or items wil be corrected or completed within one hundred and twenty (120) days. III.

It is further ordered That, in connection with any offering for sale of any new residential home for which a written warranty is offered respondents shall:

1. Clearly and conspicuously display in each sales offce and in each model home:

(a) The text of the warranty.

(b) A notice, in plain and readily understood language, that copies of the warranty may be obtained free of charge upon request. 2. Provide a copy ofthe warranty to each prospective purchaser who requests one.

3. Furnish to each purchaser a copy of the warranty prior to or at the time of execution of the sales contract for a new home. 266 FEDERAL TRADE COMMISmONDEC1S10NS Decision and Order 105 r' 4. Disclose clearly and conspicuously within the warranty any limitations on, disclaimers of, or exclusions from coverage under the written warranty or any implied warranty arising under state law; provided, however that respondents shall not make any representation, written or oral, concerning any such limitation, disclaimer or exclusion where such limitation, disclaimer or exclusion is prohibited by state or federal law.

IV.

It is further ordered That, in connection with each sale of a new residential home for which a written warranty is offered, respondents shall establish and abide by an informal dispute resolution procedure as described in Appendix A. Respondents shall furnish to each purchaser of such a home a copy of Appendix A or a comparable written explanation of said informal dispute resolution procedure prior to, or at the time of, execution of the sales contract for the new home; provided, however, that nothing herein shall prohibit respondents from utilizing a form of sales contract which clearly and conspicuously discloses that the homeowner agrees to invoke the aforementioned dispute resolution procedure prior to invoking any other remedy provided by law.

It is further ordered That, if respondents deny any written request for warranty work under respondents' written warranty, respondents shall, within thirty (30) days after receipt of the request, provide the , to- homeowner with a written statement of reasons for the denial gether with notice ofthe homeowner s right to submit any such warranty dispute to the informal dispute resolution procedure provided for in Paragraph IV of this Order.

VI.

It is further ordered, That, in connection with any offering for sale of a new residential home for which no written warranty is offered, respondents shall, prior to the time of execution of the sales contract disclose clearly and conspicuously in writing to the prospective purchaser the fact that no written warranty is offered and any limitations on, disclaimers of, and exclusions from any implied warranty arising under state law; provided, however that respondents shall not make any represe tation written or oral, concerning any such limita- 250 Decision and Order tion, disclaimer or exclusion where such limitation disclaimer or exclusion is prohibited by state or federal law. VII.

It is further ordered That, for each homeowner who took title to a home from respondents from March 10, 1978, to one year prior to the date of service of this Order and who as of the date of service of this Order is stil the owner ofthat home, respondents shall establish and abide by the redress procedure and dispute resolution mechanism described in Appendix B for any claim made by the homeowner under any written warranty or under any express or implied warranty arising from state law and for any claim made by the homeowner relating to the pre-settlement inspection of the home, provided that: 1. In the case of a warranty claim, the homeowner made a claim to respondents during the first year after settlement, and there is credible written evidence in respondents' or the homeowner s possession to establish that such a claim was then made; 2. In the case of a claim relating to the pre-settlement inspection the homeowner or respondents had at the time listed the problem or item on the Orientation Inspection Sheet;

3. The claim relating to a specific problem or item has a value of $500 or more, measured by the greater of the homeowner s actual out-of-pocket expenses reasonably incurred or the reasonable estimated cost of repair by a contractor. (All problems or items resulting from the same cause and involving the same component(s) or defect(s) shall be deemed to be a single problem or item for purposes of determining value. For example, a number of leaking windows in a home caused by improper installation ofthe windows shall be deemed to be a single problem or item.

4. Respondents refused or otherwise failed adequately to satisfy the homeowner s claim; and 5. In the case of a home in which the homeowner has modified the affected part in a manner that substantially increases the cost of repairing or correcting the alleged problem or item but the homeowner nonetheless establishes that the alleged problem or item existed prior to the modification, respondents shall not be required to bear the increase in cost of repair or correction resulting from the modification.

268 FEDERAL TRAm; COMMISSION DECISIONS Decision and Order 105 F.T.C. VIII.

It is further ordered That, for each homeowner who took title to a home from respondents within one year prior to the date of service of this Order and who as of the date of service ofthis Order is stil the owner ofthe home, respondents shall establish and abide by an informal dispute resolution procedure substantially similar to that described in Appendix A for any claim made by the homeowner under any written warranty or under any express or implied warranty arising from state law and for any claim made by the homeowner relating to the presettlement inspection ofthe home and that within sixty (60) days after this Order becomes final, respondents shall provide each such homeowner with the notice letter attached hereto as Appendix , along with a copy of Appendix A, or a comparable written explanation of said informal dispute resolution procedure. IX.

It is further ordered That in connection with any sale of a new residential home respondents shall maintain for three years after the date oftransfer of title or of delivery of the home to the purchaser whichever is earlier, and upon reasonable notice make available to the Commission for inspection and copying all non-privileged correspondence, memoranda and other documents regarding complaints or requests for repairs made to respondents by the purchasers, including all documents relating to repairs made by respondents to the home and all documents relating to disputes handled under the informal dispute resolution procedures required by this Order. It is further ordered That respondents shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents, such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in the corporations which may affect compliance obligations arising out of this Order. XI.

It is further ordered That respondents shall, within thirty (30) days of the date of service of this Order, distribute a copy of this Order to (a) each of respondents' operating subsidiaries and divisions, and (b) each offcer and salaried employee of respondents and of said subsidi- YY1-.IUJvU.r.r;;.rI1-I,. L,V 250 Decision and Order aries and divisions engaged in the construction, advertising, offering for sale, or sale of any new residential homers). XII.

It is further ordered That within six (6) months after the date of service of this Order and within six (6) months after the completion of all of respondents' obligations pursuant to paragraph VII of this Order, respondents shall fie with the Commission a report, in writing, setting forth in detail the manner in which they have complied with this Order.

XII It is further ordered That all provisions of this Order except Subparagraphs 1 , 2, 3 and 4 of Paragraph I shall be vacated ten (10) years after the date of service of this Order.

XIV.

It is further ordered That no provision of this Order shall apply to any person, partnership, corporation or other entity not named herein unless respondents, individually or collectively, either have (a) a majority equity position in, (b) actual working control over, or (c) management responsibility for such person, partnership, corporation or other entity.

APPENDIX A The informal dispute resolution procedure required by Paragraph TV of this Order shall be available to homeowners for an initiation fee of no more than $75.00 during the first three years after the efIoctive date of this Order provision, no more than $100.00 during the fourth through sixth years after the efiective date of this Order provision, and no more than $125.00 during the remaining years that this Order provision remains in effect. Provided, however That in no event shall the initiation fee constitute more than half of the total cost of the procedure. Respondents shall be ordered to return or reimburse any such fee as part of the decision at the end of the procedure if the homeowner s claim is determined to be meritorious. Upon invocation of this procedure by a homeowner, respondents shall appoint an arbitrator who is independent and knowledgeable in home construction and who has been either selected by an independent third-party organization experienced in dispute resolution or approved, in writing, by the homeowner. In ruling on claims submitted to him/her f(Jr resolution, the arbitrator shall (a) be bound by the provisions of respondents' written warranty and any express or implied warrant.ies arising from state law and (b) use the Home Owners Warranty Program Quality Standards which are applicable to the first year of ownership of the home and any applicable provisions of the building code in the jurisdiction in which the home is located to interpret all applicable Decision and Order 105 F. warranty provisions. lie/she may also consider any applicable Orientation Inspection Sheet or similar document relating to an applicable pre-settlement inspection. The arbitrator shall render a written decision on all claims submitted for resolution within sixty (60) days of respondents' receipt of the initiation fee, and shall promptly provide Ii copy of his/her decision t.o the homeowner and respondents. (Ifthe homeowner is required under the sales contract to pursue this procedure prior to invoking any other legal remedy, he/she will be deemed to have fulfilled that requirement if Ii decision is not. rendered within the required sixty-day period.) Such decisions shall be limited to determinations of the existence of defects or other problems within the scope of respondents' obligations, the nature of and time within which respondents should make required repairs or corrections, and, if the submitted claim is determined to be meritorious, return or reimbursement of the homeowner s initiation fee. The arbitrator s decision on each submitted claim shall be binding on respondents but not on the homeowner.

APPENDIX B The procedure for redress under Paragraph VII ofthe Order shall includc the following:

A. Within sixty (60) days after the Order becomes final, respondent.s shall provide each homeowner covered by paragraph VII with the attached documents and a detailed description of the dispute.e resolution mechanism and its possible uses. B. Within sixty (60) days after the mailing date of respondents' notice to the homeowner of his/her right to file claims for redress, the homeowner shall mail his/her claim to respondents or forfeit any right to repairs or reimbursement under this Order. C. Within sixty (6OJ days after receipt of any claim for redress, respondents shall respond in writing to the homeowner by eit.her: 1) Offering, within a stated time, to correct or repair the problem or item or to pay the homeowner an amount of money in settlement of the claim, and at. the same time informing the homeowner ufhis/her right to accept or reject the otter, along with notice that:

a) Ifa homeowncr accepts the offer, he/she has the right to submit any dispute over respondents' performance under thc oiler to the dispute resolution mechanism; and b) Ifa homeowner rejects the offer, he/she has the right to submit the disputed claim to thc dispute resolution mechanism.

2) Denying the claim and at the same time giving the homeowner a detailed explanation of the reasons fur the denial, along with notice that the homcowner has the right to submit the denied claim to the dispute resolution mechanism. D. Ifa homeowner accepts the offered remedy, respondents shall perform the remedy within the time promised.

E. The dispute resolution mechanism shall:

1) Be available to homeowners for an initiation fee of no more than $75. 00. Provided however That in no event shall the initiation fee constitute more than half of the total cost of the procedure.

2) Use an arbitrator who is independent and knowledgeable in home construction and who has been either selected by an independent third- party organization experienced in dispute.e resolution or approved, in writing, by the homeowner. In decisions relating to warranty claims, he/she shall be bound by the provisions of the written warranty and warranties implied under state law. The arbitrator shall use the Home Owners Warranty Program Quality Standards which are applicable to the first year WARD CORP., ET AL. 271 250 Deci!Jion and prdex of ownership of the home and any applicable provisions of the building code in the jurisdiction in which the home is located to interpret the warranty provisions. 3) Render a decision in writing within sixty (60) days of respondents' receipt of the initiation fee. The arbitrator shah provide a copy of that decision to the homeowner and respondents within one week of Tendering it. The arbitrator s decision shall be binding on respondents but not on the homeowner, who, at the time he/she receives a copy of the arbitrator s decision, shall be provided by the arbitrator or respondents with notice of his/her right to accept or reject the offer, along with notice that: a) If the homeowner accepts the decision, he/she has the right to submit any dispute over compliance with the decision to the dispute resolution mechanism; and b) Ifthe homeowner rejects the decision, he/she ha." the right to pursue any other legal remedies available to him/her.

F. The arbitrator shall include in his/her decision an award ofreimburseilent of the initiation fee unless the arbitrator determines that the homeowner s claim was not substantially justified.

ATTACHMENT 1 TO APPENDIX B Dear Ward/Richlynll Homeowner:

This letter is to notify you that you may be entitled to certain repairs made to your home free of charge. You may also be entitled to be reimbursed for money you already spent repairing your home.

Ward Development Company, Inc. ("Ward") and Richlynn Development, Inc. Richlynn ) recently agreed with the Federal Trade Commission to make certain home repairs without charge or to reimburse homeowners for repairs previously paid f()r by homeowners. If you purchased (that is, took title to) a home from Ward or Richlynn from March 10 , 1978, to lone year prior to date o(service o(the Orde and still own that home today, you may be entitled to have no-cost repairs made under the written warranty we gave you. A copy of this warranty is attached to this letter as Appendix A. You may also be entitled to have no-cost repairs made to items that were Jisted during the pre-settlement inspection you made around the time you took title to your home. In addition, you may be entitled to reimbursement for money you spent repairing your home due to Ward or Richlynn s failure to do the repairs covered by the warranty or the pre-settlement inspection list. Warranty Problems You are eligible for a repair or reimbursement under the warranty if all of the following are true:

1. During your first year of ownership, you experienced a problem that was covered by the warranty;

2. You, Ward or Richlyno have some credible written evidence that you notified Ward or Richlyno of the problem during your first year of ownership. (If you do not have a letter or any other written record that you made a complaint to Ward or Richlynn, we will check our customer fies to see if we have any record of your complaint. Our files may contain a work order, for example. We wil consider your claim for a warranty problem only ifthere is some credible written evidence that you notified us of the problem during your first year of ownership. problem;3. Ward or Richlynnandrefused to repair the problem or inadequately repaired the 4. The claim has a value of $500 or more, measured by the highest of the following: ., .. _ .._ Decision and Order 105 F.TC. . The reasonable estimated cost of repair by a contractor; or . The homeowner s actual out- pocket expenses reasonably spent to repair the problem.

Pre-Settlement Inspection Items You are eligible for a repair or reimbursement pursuant to the pre-settlement inspection list if all of the following are true: 1. The item was listed on the Orientation Inspection Sheet; 2. Ward or RichlYlln refused to repair the item or inadequately repaired the item; and 3. The claim has a value of 8500 or more, measured by the highest of the following: . The reasonable estimated cost of repair by a contractor; or . The homeowner s actual out.of-pocket expenses reasonably spent to repair the problem.

Limitation on Repair or Reimbursement Under the Warranty or Prh.')settlement Inspection List Please note, however, that if you have modified the part of your home affected by the claimed problem or item in a manner that substantially increases the cost of repair or correction, you must establish that the problem or item existed prior to the modification. And, even then, we will not bear the increase in cost of repair or correction resulting from the modification. For example, if you finished your basement and thus covered up the problem, we cannot he responsible fur the cost of refinishing your basement alter our repair work.

What You Must Do If you think you are eligible for repairs or reimbursement under the warranty or the pre-settlement inspection or both, please fil out the enclosed "Claim Form" and mail it to:

Att: ( name of Ward/Richlynn representative) Ward/Richlynn 1300 Piccard Drive Rockvillc, Maryland 20850 You rnustmail this claim form by 60 days from the mailing date of this letter. If you miss the deadline, you will Jose your right to repairs or reimbursement under the terms of our agreement with the Federal Trade Commission. Remember to keep a copy of your claim f()rm and a record ofthe date you mail it, just in case your claim gets lost in the mail.

Ward/ Richlynn will notify you within sixty (60) days of receipt of your claim form about whether we will honor your claim. If you are not satisfied with what we offer you as a repair or reimbursement, you will have t.he right to take the dispute to an impartial arbitrator. IfWard/Richlynn disputes any part of your claim, we will tell you why we are disputing the claim. You will also have the right to take this dispute to an impartial arbitrator. A description of the arbitration procedures is attached to this letter as Appendix B.

Ti'" ,, 1.n., .u". ' .1.;" __...n ;- n_ 1..._ n__ 11 r____- "'UHJ ,"UIH. , "-I .n.L.

250 Decision and Order ofWard/Richlynn representative) at (phone number) between the hours of 8:30 a. and 5:00 p. , Monday through Friday.

If you have any comments or concerns about how well Ward/Richlynn is responding to your claim, you might wish to send t.hem to the Federal Trade Commission, Division of Enforcement, Bureau of Consumer Protection, Washington, D.C. 20580. Do not send your claim form t.o that address; if you do so you might lose your right to repairs or reimbursement due to delays in Ward/Richlynn s receipt of the claim form. Very truly yours Ward Development Company, Inc.

Richlynll Development, Inc.

Enclosures ATTACHMENT 2 TO APPENDIX B CLAIM FORM This claim fbrm must be mailed by 60 days from the mailing date of the letter of notification. If you miss this deadline, you will lose your right to repairs or reimbursement under the terms of the agreement between Ward/Richlynn and the Federal Trade Commission.

Name(s) of Homeowner(s) Telephone (Home) (Work) Mailing Address (Street) (City) (State) (Zip Code) Today s date 11.

Hwe) purchased a home from:

( ) Ward Development Company, Inc.

( ) Richlynn Development, Inc.

( ) An afiliate of Ward Development or Richlynn Development (Enter name of company) 111.

The date ofsettcmentlclosing on my(our) Ward/Richlynn home was (Enter date you took title).

Decision and Order 105 F. IV.

MARK ONE ) Yes, Hwe) am(are) the current owner of this Ward/Richlynn home. ) No, J(we) do not currently own this Ward/Richlynn home. NOTE To be eligible for repairs or reimbursement by Ward/Richlynn, you must be both the purchaser of a new home from Ward/Richlynn from March 10, 1978. to fone year prior to date of service of the Orders and the current owner of this Ward/Richlynn home.

The address of my(our) Ward/Richlynn home is (Street) (City) (State) (Zip Code) (Kame of' Subdivision) VI.

INSTRUCTIONS FOR WARRANTY CLAIMS . Use additional sheets of paper if necessary. . List each problem separately.

. Describe in detail the nature of the problem. . Attach a copy (not originals) of any written evidence you have that you notified Ward or Richlynn of the problem during your first year of ownership. . If you are requesting reimbursement for money you spent for repairs, attach the following: a description ofthe repairs which were made, a copy (not originals) of the cancelled check or receipt showing that you paid for repairs, and a copy (not originals) of any other document(s) you have that shows what repairs were made and what you paid for them. NOTE If you do not have any written record that you made a complaint to us about a warranty problem, we will check our customer files to see if we have any written records (such as work orders) that you made a complaint to us. We will consider your claim for repair or reimbursement after a warranty problem only if there is some credible written evidence that you notified us about the problem in your first year of ownership. Ifno one has any written evidence that you made a complaint about the warranty problem, we can deny your claim for that problem WARD CORP., ET AL. 275 250 Decision and Orde! Warranty Claims I(we) request Ward/Richlynn to make the f()Jlowing repair(s) or reimburse me(us) under the warranty:

VII.

INSTRUCTIONS FOR PRE-SETTLEMENT CLAIMS . Use additional sheets of paper if necessary. List each problem separately.

. Describe in detail the nature of the problem. . Attach a copy ( not originals) of the pre-settlement inspection list, if you have it.

. If you are requesting reimbursement for money you spent for repairs, attach the following: a description ofthe repairs that were made, a copy ( not originals) of the cancelled check or receipt showing that you paid for repairs, and a copy (not originals) of any other rlocument(s) you have that shows what repairs were made and what you paid for them.

Pre.SettlemenlInspection Claims I(we) request Ward/Richlynn to make the following repair(s) or reimburse me(us) pursuant to the pre-settlement inspection list: APPENDIX C Dear Ward/Richlynn Homeowner:

This letter is t.o notify you that you may have the right to use arbitration to settle disputes with Ward/Richlynn.

Ward Development Company, Inc. ("Ward" ) and Richlynll Development, Inc. Richlynn ) reccntJy agreed with the Federal Trade Commission to set up all arbitration procedure which would be available at a reasonable cost to homeowners. If you purchased (that is, took title to) a new home from Ward or Richlynn from r 364 days prior to date o(service of Order to one day prior to date afservice ofOrderJ and still own that home today, you have the right to submit certain disputes to arbitration. Disputes that can go to arbitration include:

Any disagreements you have with Ward/Richlynn about its performance under the one year written warranty given to you when you purchased the home. (For example, you may disagree with Ward/Richlynn s refusal to repair a probJcm that you believe is covered by the warranty. Or you may believe that Wardl Richlynn s attempts to repair a problem were inadequate. You can take these kinds of disputes t.o arbitration.

Any disagreements you have with Ward/Richlynn about its handling of problems and items Jisted during your pre-settlement inspection. (For example, you may believe that Ward/Richlynn has not corrected all of the items listed on the Orientation Inspection Sheet. Or you may dispute the adequacy of Ward/Richlynn repairs. You can submit these disagreements to arbitration. Decision and Order 105 F. You may use this arbitration procedure at any time, even after the one year warranty period is over. The expiration ofthe one year warranty period does not affect your right to arbitrate disputes that arise during the warranty period. A copy of the arbitration procedures is attached to this letter. Please read these procedures carefully. If you have any questions about this arbitration procedure, call (name of Ward! Richlynn representative) at (phone number) between the hours of 8:30 a.m. and 5:00 , Monday through Friday.

Very truly yours Ward Development Company, Inc.

Richlynn Development, Inc.

Enclosure Li\Ll1'LJrtl'lli\ lVl.rUlLi\L Abbey. ',FI 277 Modifying Order