CENTER OF LIFE CHURCH, Plaintiff and Appellee, v. ROBERT NELSON and DEBRA NELSON, Defendants and Appellants.
#28188, #28208-a-SLZ
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
05/30/18
2018 S.D. 42
THE HONORABLE MARK E. SALTER, Judge
APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA. CONSIDERED ON BRIEFS APRIL 16, 2018.
MITCHELL A. PETERSON of Davenport, Evans, Hurwitz, & Smith, LLP, Sioux Falls, South Dakota. Attorneys for plaintiff and appellee.
TIMOTHY A. CLAUSEN, RYLAND DEINERT of Klass Law Firm, LLP, Sioux City, Iowa. Attorneys for defendants and appellants.
[¶1.] Shortly after purchasing a house, the buyers experienced significant water-penetration issues. The buyers subsequently sued the sellers for violating statutory-disclosure requirements. The jury found in favor of the buyers, and both parties appeal. The sellers argue the circuit court erred in denying their motions for judgment as a matter of law and for a new trial. The buyers argue the court erred in denying their request for attorney fees. We affirm.
Facts and Procedural History
[¶2.] In 1999, Robert and Debra Nelson purchased the single-family house that is at issue in this case. It is a large 6,100 square foot structure that sits at the bottom of a hill. It has a swimming pool and two separate basements: one located under the kitchen and one located under the garage. The kitchen basement was finished and had several rooms. The garage basement was unfinished, had a crawl space, and was primarily used for storage. Water from the home‘s sump pumps, roof gutters, and drains in the backyard patio drained into four underground pipes that ran near the house and into the street.
[¶3.] In 2003, Nelsons began experiencing water penetration in the kitchen basement. They had a “LaCroix” dewatering system installed. The installation involved drilling holes in the foundation to allow the water to run into a plastic gutter that ran inside the house to a sump pump. The system did not prevent water penetration but instead redirected it. According to Nelsons, they did not experience further water problems in the kitchen basement after installing the LaCroix system.
[¶4.] In 2008, after deciding to build a new home, Mr. Nelson noticed a puddle of water in the garage basement. He had a “Blackburn” dewatering system installed in the garage basement. Installation of that system involved removal of part of the concrete floor to install tile, which collected and directed the water to a sump pump. Mr. Nelson testified he did not go into the garage basement very often, but he stated he did not notice any water-penetration issues in the garage basement after installing the Blackburn system.
[¶5.] Nelsons moved out of the house in April or May 2009. Prior to putting it on the market, they painted most of the interior walls, replaced the hardwood floors, and installed several new appliances. In June 2009, they put the house on the market and filled out the seller‘s disclosure form required by
[¶6.] The inspection report noted that there were water marks and stains on the walls and floor and that one of the sump pumps was broken. It also noted that the grade around parts of the house sloped toward the foundation. Although the report noted the sloping landscaping, Zea wrote on the report: “Normal. No problem.” Zea testified that he made this notation because Mr. Nelson told him it was not a problem.
[¶7.] Section II of the disclosure form requires yes or no answers to questions concerning structural information. The form also requires that sellers who answer “Yes” to any of the questions are to “explain” in additional comments or on an attached separate sheet. The first question under Section II of Nelsons’ form asked: “Are you aware of any water penetration problems in the walls, windows, doors, basement, or crawl space?” Nelsons checked the box marked “Yes.” After the question, Nelsons wrote, “Basement.” The second question asked for the date and nature of any “water damage related repairs that were made.” Nelsons wrote: “Basement dewatering system installed” in the “Last 5 years.” The statement did not incorporate the home inspection report,1 and no other information concerning water penetration issues was disclosed.
[¶8.] Judy Shaw, a pastor at the Center of Life Church, expressed interest in the house after her friend and real estate agent, Marcie Raggow, recommended it. Shaw believed the house would be a good place to hold Church meetings and provide lodging for missionaries who were temporarily staying in the area. In August 2009, Shaw and members of the Church provided Nelsons with a brochure suggesting they donate the house to the Church for tax benefits. Nelsons declined.
[¶9.] Shaw, Raggow, and other Church members walked through the house several times between August and November 2009. Shaw and Raggow also reviewed the disclosure form and HouseMaster report. No one noticed any signs of water, mold, or mildew problems.
[¶10.] In November 2009, the Church made a formal offer at the full listing price ($658,000) if Nelsons would donate half of the purchase price back to the Church. The offer was not contingent on the Church‘s own inspection. Nelsons counteroffered for $595,000. The Church did not respond to the counteroffer and it expired.
[¶11.] In December 2009, Shaw approached Mr. Nelson to continue negotiations. The parties agreed on a price of $540,000 with no donation. A purchase agreement was executed that did not contain a contingency for the Church‘s own inspection. The formal closing took place in early January 2010.
[¶12.] About one week after closing, Sioux Falls experienced a January rainstorm, and Shaw observed a significant amount of mud and water flooding into the garage basement and crawl space. A week later, Shaw observed more water coming in from the walls in both basements. The Church continued to have water problems every time it rained. They also experienced leaking from the roof and gutters. When Mr. Nelson met with the Church at the house concerning these problems, he suggested they needed to remove snow from the backyard patio and the roof. The Church continued to experience significant water problems during subsequent summers and winters.
[¶14.] The estimates to repair the home were large; and the Church sued Nelsons for violating the statutory disclosure requirements, fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation. At trial, the Church called several witnesses, including three experts who opined that the dewatering systems installed by Nelsons were insufficient. They also testified it was likely that the problems experienced by the Church had been ongoing and could not have first appeared after the Church acquired the property. At the close of the evidence, Nelsons filed a motion for judgment as a matter of law. The circuit court reserved ruling on the motion and submitted the case to the jury.
[¶15.] The jury found in favor of Nelsons on the Church‘s claims of fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation. However, the jury found in favor of the Church on its statutory disclosures claim. The jury awarded $192,047.91 of the Church‘s $377,231.42 request for damages and repairs.
[¶16.] In post-trial proceedings, the circuit court denied Nelsons’ motion for judgment as a matter of law. Nelsons then renewed the motion, arguing there was no evidence that they failed to truthfully complete the disclosure statement in good faith. The court denied the motion. Nelsons also moved for a new trial based on an objectionable statement of a Church witness, a violation of the court‘s sequestration order, and violations of an order prohibiting testimony regarding insurance. The court also denied that motion. Finally, the court denied the Church‘s motion for attorney fees.
[¶17.] Nelsons appeal, and we restate their issues as follows:
- Whether the circuit court erred in denying Nelsons’ renewed motion for judgment as a matter of law.
- Whether the circuit court abused its discretion denying Nelsons’ motion for new trial.
The Church raises the following issue by notice of review:
- Whether the circuit court abused its discretion in denying the Church‘s request for attorney fees.
Decision
Renewed Motion for Judgment as a Matter of Law
[¶18.] Before addressing the merits of Nelsons’ motions, we clarify our standard of review. Nelsons cite to Harmon v. Washburn, 2008 S.D. 42, ¶ 10, 751 N.W.2d 297, 300, which used the abuse of discretion standard in reviewing a circuit court‘s rulings on motions for judgment as a matter of law and renewed motions for judgment as a matter of law under
[¶19.] The substantive law governing a seller‘s property disclosure statement is well-established. “[W]ith the adoption of South Dakota‘s disclosure statutes[,] the doctrine of caveat emptor has been abandoned in favor of full and complete disclosure of defects of which the seller is aware.” Engelhart v. Kramer, 1997 S.D. 124, ¶ 20, 570 N.W.2d 550, 554. “The statutes require a complete and truthful disclosure made in good faith, not a disclosure simply sufficient to put the buyer on notice of the defects.” Fuller v. Croston, 2006 S.D. 110, ¶ 18, 725 N.W.2d 600, 606. A seller who intentionally or negligently fails to comply “is liable to the buyer for . . . the actual damages and repairs suffered by the buyer as a result of the violation or failure.”
[¶20.] Nelsons argue they truthfully completed the disclosure statement and therefore cannot be liable. They point out they disclosed that they had experienced water penetration in the “Basement” and that they had installed a dewatering system in the “Last 5 years.” But they do not support their “truthfully completed” argument with an analysis of the evidence at trial. Instead, they rely heavily on two statements made by the circuit court. Nelsons first point out that the court stated it did not believe there was evidence suggesting they were untruthful or acted in bad faith. Nelsons also point out that the circuit court denied the renewed motion for judgment as a matter of law partly because it stated Nelsons did not disclose the frequency or magnitude of the water penetration issues. Nelsons claim this reasoning impermissibly “expanded the requirements” of the disclosure statutes.
[¶21.] Nelsons’ reliance on the circuit court‘s statements is misplaced. First, as previously noted, because our review is de novo, we give no deference to the circuit court analysis. Second, the circuit court was not “expanding the requirements” of the disclosure statutes; it was merely hypothesizing how the jury could have reached its verdict based on the evidence. And in reviewing that matter, the frequency and magnitude of the water problems were relevant. The question was not simply whether Nelsons were truthful in reporting what they did disclose, the question was also whether their disclosure was complete; i.e. a “complete and truthful” disclosure made in good faith. See Fuller, 2006 S.D. 110, ¶ 18, 725 N.W.2d at 606.
[¶22.] We explained the complete and truthful standard in Engelhart. We noted that the “terms ‘truthful[]’ and ‘complete’ do not operate independently to the exclusion of the other. A plain reading of the terms together evince[s] a more exacting standard than truth alone.” Engelhart, 1997 S.D. 124, ¶ 11, 570 N.W.2d at 552-53. Therefore, even if Nelsons’ disclosure statement was “truthful” in that it disclosed a water-penetration occurrence, the jury would be warranted in finding Nelsons liable if it also found that the statement was not “truthfully complete” because there were also ongoing issues that were not disclosed.
[¶23.] The Church‘s theory was that Nelsons violated the disclosure statutes because they experienced ongoing water-penetration issues, they were aware of those ongoing issues, and they failed to disclose them. Nelsons disputed these factual claims. Mr. Nelson specifically testified that his answers on the disclosure statement
[¶24.] Nelsons argue there was no evidence they were aware of ongoing issues. We disagree. We acknowledge there was no direct evidence of ongoing issues: none of the witnesses who testified observed any signs of ongoing problems prior to the sale. However, the Church produced both expert testimony and circumstantial evidence from which the jury could have found that Nelsons were aware of long-standing, ongoing issues.
[¶25.] Jeremy Carlson, a landscaping contractor who assessed the house‘s landscaping and drainage, identified several pre-sale problems that were causing water to get into the home. Those problems included deteriorated brick, an exterior grade that sloped toward the foundation, and a drainage system that was inadequate to handle the amount of water coming into the system. He also indicated these problems would have originated long before the Church acquired the house. He testified that the collapsed drainage pipes would have frozen “within the first couple of years” and that many of the issues “started with initial construction.” Thus, he opined that the problems would not have started like a “light switch“—the owner of this house could not “go from one year to having nothing and then all of a sudden one year you have really bad issues.”
[¶26.] Jason Kolb, another contractor, agreed. He testified that the drainage system was inadequate to handle any significant amount of water. He also testified that the water-penetration issues were due to the slope of the grade and ice jams. He opined that water would have continued to penetrate the house after the dewatering systems were installed.
[¶27.] Pat McKnight, a masonry contractor, provided an additional consistent opinion. He testified that the slope of the backyard patio caused water to pool up and run into the house. He specifically opined that the water-penetration issues did not start with the January 2010 storm and that water problems would have continued after the dewatering systems were installed.
[¶28.] There was also circumstantial evidence suggesting Nelsons were aware of ongoing water problems. First, both McKnight and Kolb observed caulking around the foundation, which they believed was an attempt to prevent moisture from getting inside. Second, Shaw testified that on one occasion while viewing the house, Mr. Nelson made comments about having to remove snow from the back yard. Third, several witnesses observed that Nelsons had left several cans of water-, mold-, and mildew-resistant paint at the newly repainted house.
[¶29.] We finally note that there was evidence discrediting Nelsons’ credibility concerning their awareness of ongoing problems. For example, Mr. Nelson‘s claim of no backyard-water pooling was not consistent with other evidence. The sloping patio was clearly a pre-sale condition, the jury heard testimony that the sloping patio and inadequate drainage was causing the pooling, and the jury saw a video of water pooling on the back patio after a rain storm. Additionally, Mr. Nelson made a statement to Shaw impliedly acknowledging that the garage basement floor might continue to get wet. Shaw testified that prior to purchasing the house, she
[¶30.] Viewing the circumstantial evidence in a light most favorable to the verdict, and leaving it to the jury to judge credibility, there was sufficient evidence for the jury to find Nelsons were aware of ongoing water penetration issues that were not disclosed. Accordingly, there was sufficient evidence for the jury to find that Nelsons intentionally or negligently failed to truthfully complete the disclosure statement.2 The circuit court did not err in denying Nelsons’ renewed motion for judgment as a matter of law.
Motion for New Trial
[¶31.] Nelsons first argue they are entitled to a new trial because two Church witnesses mentioned insurance in their testimony.3 Prior to trial, the court issued an order in limine prohibiting any reference to insurance. However, Raggow‘s testimony included a statement suggesting that HouseMaster had errors and omissions insurance for its inspection report. Additionally, Raggow and Shaw testified that Mr. Nelson had told Shaw to file a claim with the Church‘s insurance company. After the final mention of insurance, the court instructed the jury to disregard any reference to insurance.
[¶32.] Although Nelsons contend the references to insurance violated the court‘s order, they fail to demonstrate prejudice. The circuit court indicated that the purpose of its order “was to effectuate the purposes of Rule 411, which prohibits evidence of liability insurance for the purpose of establishing negligence or wrongdoing.” See
[¶33.] Nelsons next argue they were entitled to a new trial because a
Attorney Fees
[¶34.] The Church argues the circuit court erred in denying its request for attorney fees. “South Dakota utilizes the American rule that each party bears the burden of the party‘s own attorney fees.” In re S.D. Microsoft Antitrust Litig., 2005 S.D. 113, ¶ 29, 707 N.W.2d 85, 98. “Attorney fees may only be awarded by contract or when specifically authorized by statute.” W. Nat‘l Mut. Ins. Co. v. TSP, Inc., 2017 S.D. 72, ¶ 21, 904 N.W.2d 52, 60.
[¶35.] The Church, however, contends that the circuit court‘s discretion under
[¶36.] The Church‘s reliance on attorney fee awards in federal civil rights cases is misplaced. The United States Supreme
[¶37.] A better analogy can be drawn from the Supreme Court‘s analysis of attorney fee awards under a more similar statutory scheme. See generally Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S. Ct. 1023, 127 L. Ed. 2d 455 (1994). In that case, the fee dispute involved
[¶38.] The same is true with respect to
[¶39.] Because the decision to award fees is discretionary, we must decide whether the circuit court abused its discretion in denying them to the Church, the prevailing party. The court acknowledged that Nelsons’ disclosure was incomplete, that the Church would be required to make substantial repairs, and that the Church was the prevailing party. However, the court also balanced a number of competing factors in concluding “that the remedial purposes of
[¶40.] Other than arguing that it is entitled to fees simply because it prevailed, the Church does not dispute any of these equitable factors the circuit court considered in denying fees. Instead, it argues the court erred in failing to apply the factors for determining reasonable attorney fees identified in Eagle Ridge Homeowners Ass‘n v. Anderson, 2013 S.D. 21, ¶ 28, 827 N.W.2d 859, 867. But the Eagle Ridge factors are inapplicable here. Those factors are useful in determining the reasonableness of the fee request (the amount)6 rather than the appropriateness of making an award of any amount; and here, the dispute was not over the reasonableness of the amount the Church requested.
[¶41.] In applying the abuse of discretion standard, we “do not determine whether we would have made the same decision as the circuit court.” Gartner v. Temple, 2014 S.D. 74, ¶ 7, 855 N.W.2d 846, 850. Instead, our function in reviewing matters that rest in the discretion of the circuit court “is to protect litigants from conclusions [that] exceed the bounds of reason.” Id. Here, in concluding that fees were not appropriate, the court carefully considered not only the verdict obtained by the prevailing party, but also the purposes of the disclosure statutes, Nelsons’ culpability, and the Church‘s diligence. Although we do not formally adopt these considerations, they are relevant factors in guiding a court‘s discretion. We conclude that the circuit court‘s decision based on such factors was not a “fundamental error of judgment, a choice outside the range of permissible choices, [or] a decision, which, on full consideration, [was] arbitrary or unreasonable.” Gartner, 2014 S.D. 74, ¶ 7, 855 N.W.2d at 850.
[¶42.] The circuit court did not err in denying Nelsons’ renewed motion for judgment as a matter of law. Further, the court did not abuse its discretion in denying the motion for new trial and declining to award attorney fees. Affirmed.
[¶43.] GILBERTSON, Chief Justice, and SEVERSON, KERN, and JENSEN, Justices, concur.