Appellate Court Holds That the New Mexico Unfair Practices Act Applies to a “Services” Contract for the Construction of a Home, But Does Not Apply to a “Sales” Contract for the Sale of a Completed Home

Fogelson v. Bozzone, 2017 N.M. App. LEXIS 58 (July 26, 2017)

In May of 2008, Wallen Development, LLC (“Wallen”) entered into a written agreement to construct and sell a new home to David and Corinne Fogelson (“Fogelson”).  But, after Fogelson paid Wallen in excess of $165,111 under the agreement, Wallen went out of business as a result of financial difficulties.

Fogelson filed an arbitration action against Wallen and ultimately obtained a default judgment after Wallen failed to appear.  Thereafter, Fogelson filed a complaint in court against various individuals affiliated with Wallen.  As relevant here, Fogelson asserted a claim under New Mexico’s Unfair Practices Act, NMSA 1978 §§ 57-12-1 to -26 against one of Wallen’s owners, Mark Bozzone (“Bozzone”).  Bozzone filed a motion to dismiss on the basis that “construction services”, such as those provided by Wallen, do not fall within the scope of the Unfair Practices Act.  The trial court granted Bozzone’s motion.

The major issue on appeal was whether the doctrine of res judicata applied to an arbitration proceeding.  After a very lengthy discussion covering over half of the opinion, the Court of Appeals ruled the res judicata did apply to the arbitration result against Wallen. 

With respect to the Unfair Trade Practices issue, the Court recited that the Unfair Practices Act “prohibits misrepresentation made in connection with the sale of goods or services by a person in the regular course of his trade or commerce.”  To determine the scope of the Unfair Practice Act’s coverage under the present circumstances, the Court needed to consider McElhannon v, Ford, 134 N.M. 124 (Ct. App. 2003), in which the court had previously discussed the Act’s coverage in the context of real estate sales transactions.

In McElhannon, the plaintiff alleged violations of the Unfair Practices Act arising from the sale of a completed house.   There, the court reasoned that the term “goods,” “is generally understood to mean personal estate as distinguished from realty.” While acknowledging that “services” means “work done by one person at the request of another,” the McElhannon Court stated that “to the extent goods and services are combined to create a structure that is permanently affixed to realty, they are understood to have been ‘converted’ to realty.”  Id.  Consequently, the court held that “a sale of a completed house is not a sale of goods or services” for purposes of the Unfair Practices Act.  Id.

Distinguishing McElhannon from the case before it, the Fogelson Court noted that Fogelson’s unfair trade claim arose from an agreement to perform construction services on a vacant lot, rather than the sale of a completed home.  Therefore, the “‘combined’ view of goods and services expressed in McElhannon does not apply.”  Instead, the court concluded that the construction services performed by Wallen are “undoubtedly ‘work done by one person at the request of another,’” and are therefore “services” within the meaning of the Unfair Practices Act.

Therefore, absent any indication from the legislature that “construction services” are excluded from the type of “services” covered by the Act, the Court held that the Unfair Practices Act applies.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Kristopher Berr

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