Heath v. Palmer 

Heath v. Palmer (2005-142)

2006 VT 125

[Filed 20-Nov-2006]

                                 ENTRY ORDER

                                 2006 VT 125

                      SUPREME COURT DOCKET NO. 2005-142

                             FEBRUARY TERM, 2006


  Joanne and Jerry Heath               }         APPEALED FROM:
                                       }
       v.                              }         Chittenden Superior Court
                                       }  
  Warren C. Palmer, Saxon Oaks         }
  Company, WCP Construction            }         DOCKET NO. S1301-02 CnC
  Company, and Palmer Real Estate      }
  and Development Company              ]
                                                 Trial Judge: Richard W. Norton

             In the above-entitled cause, the Clerk will enter:

       ¶  1.  Plaintiffs Joanne and Jerry Heath filed a three-count
  complaint against defendant Warren Palmer and several corporate entities
  owned by Palmer (defendants) alleging consumer fraud, contractor's
  negligence, and breach of contract and warranty in the construction and
  sale of a new home located in the Town of Jericho.  The court rejected
  plaintiffs' negligence and fraud claims but entered judgment for plaintiffs
  on their warranty claim and awarded damages of $4,089.74.  Plaintiffs
  appeal, contending that the court erred by: (1) limiting defendants'
  liability to construction defects reported within one year of the closing;
  (2) awarding lower damages for certain defects than the evidence warranted;
  (3) rejecting plaintiffs' consumer fraud and negligence claims; (4)
  refusing to hold defendant Palmer individually liable; and (5) denying
  plaintiffs' request for prejudgment interest.  As explained below, we
  affirm the court's rulings in most respects, but reverse and remand for
  further findings and conclusions with regard to the award for breach of
  warranty. 

       ¶  2.  The facts may be summarized as follows. Plaintiffs entered
  into a "buy-build" contract with defendants for the construction and
  purchase of a new home. The total price of the home was $261,302. The
  closing occurred in October 1999.  Plaintiffs received a copy of
  defendants' "Service Repair and Warranty Policy" at the closing.  The
  policy called for plaintiffs to inspect the property thirty days, ninety
  days, and twelve months after the closing, to complete and return
  inspection reports, and to provide access for defendants to conduct service
  calls in response to the inspection reports.  The policy represented that
  defendants offered "quality construction with exceptional value" and set
  forth a "limited warranty on the construction of every home we build" with
  the exception of components such as furnace, cabinets, and light fixtures
  that were covered by their own manufacturers' warranties. 

       ¶  3.  Plaintiffs submitted a thirty-day inspection report on a form
  provided by defendants detailing a number of alleged construction defects
  throughout the house.  Plaintiffs created and submitted their own checklist
  for the ninety-day and twelve-month inspections setting forth an extensive
  list of additional defects.  Plaintiffs sent an additional defects list in
  June 2002, followed by a detailed structural engineering report listing the
  alleged defects room-by-room with cost estimates for each item of repair. 
  The total exceeded $30,000.  
   
       ¶  4.  Dissatisfied with defendants' response, plaintiffs filed
  suit, alleging construction negligence, consumer fraud, and breach of
  contract and warranty.  The parties agreed to submit the matter to a
  special master, but reserved the right to object to the court's acceptance
  of the report.  V.R.C.P. 53.  Following a hearing, the master submitted a
  written report to the court, setting forth his findings and conclusions. 
  The master concluded that the warranty was "an effective limitation of
  liability" precluding plaintiffs from recovering for any defects not
  reported within one year of the closing or otherwise acknowledged as
  deficiencies by defendants.  As for recoverable damages, the master noted
  that the only evidence of remedial costs was the engineering report
  submitted by plaintiffs, and awarded damages for nine separate repair items
  totaling $4.089.74.  The master explained the discrepancy between this
  figure and that submitted by plaintiffs as follows: 

    Some of [plaintiffs'] claims are denied because notice was not
    given during the Warranty period; some are denied because,
    although Plaintiffs are not satisfied with the result, the work
    complie[d] with contract specifications (e.g. the driveway), is
    not negligent (e.g.  basement water) or of an unworkmanlike
    quality (e.g. garage wall); and some are denied because they are
    covered by a manufacturer's warranty (e.g. laminate floor), and
    are therefore excluded by the Warranty. 


       ¶  5.  Plaintiffs objected to the master's report on several grounds,
  but the trial court rejected plaintiffs' objections and issued a written
  decision adopting the report in its entirety.  As noted, the policy
  provided generally that the builder "[stood] behind the construction of
  each and every home" and sought "to provide quality assurance" and
  represented that the builder offered "quality construction" and a "limited
  warranty on the construction of every home we build."  The court concluded
  that the policy was not "an express assurance of any particular level of
  quality," but rather "a memorialization of the implied warranty of good
  workmanship" stating a process and schedule for reporting discovered
  defects to be repaired. (FN1)  The court observed, correctly, that the
  implied warranty applied to defects latent at closing.   Meadowbrook Condo.
  Ass'n v. S. Burlington Realty Corp., 152 Vt. 16, 19, 565 A.2d 238, 240
  (1989) (noting that "the law will recognize an implied warranty only with
  respect to defects that were latent at the time of purchase").   The court
  further concluded, in agreement with the master, that the policy limited
  defendants' liability for all latent defects to those defects reported
  within one year of the closing.  The court affirmed the master's damage
  award for breach of warranty, rejected plaintiffs' negligence and consumer
  fraud claims, declined to hold defendant Palmer personally liable, and
  denied plaintiff's request for prejudgment interest.  This appeal followed.   
     
                                   I.

        
       ¶  6.  Plaintiffs first contend that the court erred in construing
  the warranty policy to limit defendants' liability to defects reported
  within one year of the closing.  The general rule is that exclusions or
  modifications of warranties must be conspicuous and unambiguous.   See 9A
  V.S.A. § 2-316(2) (exclusions or modifications of implied warranty of
  merchantability and fitness in sale of goods must be conspicuous and in
  writing); Bolkum v. Staab, 133 Vt. 467, 469-70, 346 A.2d 210, 211 (1975)
  (applying statutory provision relating to implied warranty in sale of goods
  to structural defects in home).  We are not persuaded that the policy
  placed a clear and unambiguous twelve-month limit on defendants' liability
  for latent defects under the implied warranties of habitability and good
  workmanship.  The policy terms contained no express exclusion of either
  implied warranty, and contained no clear and unambiguous provision-agreed
  to by plaintiffs-waiving defendants' liability for such defects not
  reported within one year of closing.   See 14 R. Powell et al., Powell on
  Real Property §84A.06[8], at 84A (1994) (noting general rule that
  disclaimer of implied warranty for builder of home may be upheld if it is
  specific, conspicuous, and mutually agreed upon by all parties); Hoagland
  v. Celebrity Homes, Inc., 572 P.2d 493, 494 (Colo. Ct. App. 1977)
  (limitation in letter of warranty did not apply to implied warranties
  because the letter "contain[ed] no words of limitation that would indicate
  the intention of the builder to abrogate or limit his common law implied
  warranties").    

       ¶  7.  Absent such a provision, the general rule is that the
  duration of the implied warranty of habitability and good workmanship is
  determined by a "standard of  reasonableness."  Rothberg v. Olenik, 128 Vt.
  295, 304, 262 A.2d 461, 467 (1970); accord Sheibels v. Estes Homes, 778 P.2d 1299, 1301 (Ariz. Ct. App. 1989) (observing that in determining
  duration of implied  warranty of fitness "standard to be applied to each
  factual situation is reasonableness"); Wagner Constr. Co v. Noonan, 403 N.E.2d 1144, 1148 (Ind. Ct. App. 1980) ("The duration of the implied
  warranty of fitness for habitation is determined by the standard of
  reasonableness.");  Lempke v. Dagenais, 547 A.2d 290, 297 (N.H. 1988) ("The
  implied warranty of workmanlike quality for latent defects is limited to a
  reasonable period of time."); Terlinde v. Neely, 271 S.E.2d 768, 769 (S.C.
  1980) (stating that "length of time for latent defects to surface . . .
  should be controlled by the standard of reasonableness"); Moxley v. Laramie
  Builders, Inc., 600 P.2d 733, 736 (Wyo. 1979) (concluding that builder's
  implied warranty of fitness extends for a "[r]easonable length of time"). 

       ¶  8.  In determining what is reasonable under the circumstances,
  courts have looked to such factors as the age of the home and its
  maintenance history, the nature of the defect and the extent to which it is
  discoverable through reasonable inspection, and the parties' expectations
  as to the reasonable durability of the defective structure.  See, e.g.,
  Hershey v. Rich Rosen Constr. Co., 817 P.2d 55, 61 (Ariz. Ct. App. 1991)
  ("[T]he duration that an implied warranty will exist is a factual
  determination that will depend, in part, on the life expectancy of the
  questioned component in a non-defective condition."); Wagner Constr. Co.,
  403 N.E.2d  at 1148 (finding that five years was reasonable duration of
  implied warranty for latent defect in residential septic system given
  "common knowledge that the expected efficient life of a properly installed
  septic system in a newly constructed dwelling is greater than five years");
  see generally Builder-Vendor Liability for Environmental Contamination in
  the Sale of New Residential Property, 58 Tenn. L.Rev. 231, 238 (1991)
  ("Most courts hold that the [implied] warranty [of habitability or good
  workmanship] lasts for a 'reasonable time,' with the duration of the
  warranty determined by the nature of the defect and the particular
  circumstances of the case.").
        
       ¶  9.  In attempting to apply the foregoing warranty principles to
  the facts here, however, we are confronted by a dearth of specific findings
  in either the master's report or the trial court's decision.  The master
  found, and the record shows, that plaintiffs submitted several inspection
  reports within the one-year reporting period setting forth an extensive
  list of alleged defects.  Plaintiffs also submitted an additional report in
  October 2002, about three years after the closing, prepared by a consulting
  engineer and containing specific cost estimates for previously reported
  defects as well as additional problems. The master indicated that
  plaintiffs raised still more deficiencies, such as the "mis-alignment of
  the dining room doors," for the first time at the hearing in August 2004. 

       ¶  10.  As noted, the master concluded, and the court agreed, that
  plaintiffs waived their right to recover for defects not reported to
  defendants during the one-year period, but the court made no specific
  findings as to why, or even whether, one year constituted a reasonable
  period under the law discussed above.  Nor did the master or the court make
  clear and specific findings as to which, if any, of the reported defects
  could have been reasonably discovered prior to closing, and which were
  latent subsequent to closing.  See Meadowbrook, 152 Vt. at 19, 565 A.2d  at
  240 (implied warranties of merchantability and workmanship apply to defects
  that were latent at time of purchase).  "The trial court has a fundamental
  duty to make all findings necessary to support its conclusions, resolve the
  issues before it, and provide an adequate basis for appellate review." 
  Sec'y, Vt. Agency of Natural Res. v. Irish, 169 Vt. 407, 419, 738 A.2d 571,
  580 (1999).  Absent the requisite findings and analysis discussed above, we
  cannot properly resolve plaintiffs' claim that the court erroneously
  restricted their recovery to a few of the many defects which they reported
  to defendants.  Accordingly, we conclude that the case must be remanded for
  additional findings and conclusions as discussed above. 

                                     II.


       ¶  11.  Plaintiffs also claim that the damage award for four specific
  construction defects was not adequately supported by the evidence or
  findings.  Again, we are constrained to agree.  Plaintiffs adduced evidence
  that repairs for a myriad of reported drywall problems would cost
  approximately $7225.  Plaintiffs also introduced evidence that defects in
  the master bathroom would cost $2107; that certain defects in the
  children's bathroom would cost $374; and that certain defects in the
  stairway would cost $576.  Defendants submitted no competing estimates. 
  The master's report recommended an award of $1628.64 for drywall
  deficiencies, but contained no findings identifying the source of this
  figure or explaining the discrepancy between this amount and plaintiffs'
  evidence. Similarly, the master's report recommended an award of $189.93 to
  caulk and grout the master bath, $62.85 to install a vanity filer strip in
  the children's bathroom, and $345.75 to re-finish the stairway, but again
  set forth no findings or explanation for excluding other specifically
  identified defects in these areas. (FN2)  In adopting the master's
  recommendations, the trial court addressed the disparity as follows:
                                            
    Based upon the court's reading of the transcript, the evidence was
    not clear that all drywall problems that the contractor included
    in the estimate were violations of the warranty of good
    workmanship.  For example, some drywall repairs that were made by
    Builders to Buyers' satisfaction have since become problems again. 
    Some damage could have occurred in the year and a half of
    occupancy.  Similar issues arise with respect to the other damage
    assessments that Buyer[s] object to.  The master's determination
    of damages was not clearly erroneous.

       ¶  12.  The court does not explain, however, why drywall problems
  that were repaired once and "have since become problems again" do not
  violate the warranty of good workmanship.  Nor does the possibility that
  some drywall damage "could have occurred in the year and half of occupancy"
  represent a clear finding that the damages were caused by plaintiffs rather
  than by the builder, and therefore were not recoverable.  Nor does the
  court identify the source of the $1628.64 drywall-repair figure.  Nor,
  finally, does the court's assertion that "similar issues arise with respect
  to the other damage assessments that Buyers object to" adequately explain
  the basis for excluding specific repairs to the other areas in question. 
  Accordingly, we conclude that the case must be remanded for additional
  findings addressed to these issues as well.

                                  III.

       ¶  13.  Plaintiffs raise a variety of additional claims, none of
  which is persuasive.  First, they contend that the court erred in rejecting
  their claim under the Consumer Fraud Act, 9 V.S.A. §§ 2451-2463 (Act).  The
  Act makes unlawful "unfair or deceptive acts or practices in commerce," id.
  § 2453(a), and provides a private right of action for a "consumer who
  contracts for goods or services in reliance upon false or fraudulent
  representations or practices prohibited by section 2453."  Id. § 2461(b). 
  Plaintiffs' consumer fraud claim is premised on defendants' representation
  that they "take pride in offering cost efficient, quality construction with
  exceptional value."  Plaintiff Joanne Heath also testified that defendant
  Palmer personally vouched for the value and quality of the construction.  

       ¶  14.  We have distinguished statements of fact from statements of
  opinion in the consumer-fraud context, holding that misrepresentations of
  the former may constitute fraud while misrepresentations of the latter
  cannot.  Winey v. William E. Dailey, Inc., 161 Vt. 129, 133, 636 A.2d 744,
  747 (1993).  Defendants' representations here of "quality construction" and
  "exceptional value" unquestionably fall within the category of opinion as
  subjective evaluations of workmanship rather than objectively verifiable
  statements of fact.  See, e.g., Avery v. State Farm Mut. Auto. Ins. Co.,
  835 N.E.2d 801, 848 (Ill. 2005) (ruling that advertisement of "quality
  replacement parts" was mere commercial puffery, "the truth or falsity of
  which cannot be precisely determined" and was therefore not actionable
  under deceptive practices act); McGraw v. Loyola Ford, Inc., 723 A.2d 502,
  512 (Md. Ct. Spec. App. 1999) (holding that representation of product as
  "most outstanding value" was expression of opinion not actionable under
  consumer protection act); Tietsworth v. Harley-Davidson, Inc., 677 N.W.2d 233, 245-46 (Wis. 2004) (holding that advertisement of product as "premium
  quality" was "mere commercial puffery" incapable of "being substantiated or
  refuted" and therefore not actionable under state deceptive practices act
  (quotations omitted)).  Accordingly, we conclude that the trial court
  properly dismissed plaintiffs' consumer fraud claim.
   
       ¶  15.  Next plaintiffs contend that the court erred in rejecting
  their claim against defendants Palmer and WCP Construction for
  "contractor's negligence."  The trial court properly rejected the claim,
  observing that plaintiffs' remedy for the purely economic losses resulting
  from the reduced value or costs of repairs of the construction defects
  sounded in contract rather than tort. See Gus' Catering, Inc. v. Menusoft
  Sys., 171 Vt. 556, 558-59, 762 A.2d 804, 807 (2000) (mem.) (reaffirming
  principle that negligence law does not generally recognize duty to exercise
  reasonable care to avoid economic loss, and defining economic loss to
  include "damages for inadequate value, costs of repair and replacement of
  the defective product, or consequent loss of profits") (internal quotation
  omitted);  Paquette v. Deere & Co., 168 Vt. 258, 263, 719 A.2d 410, 414
  (1998) (rejecting tort claim for allegedly defective motor home and holding
  that claim for purely economic damages for reduced value of home was
  actionable in warranty).  

       ¶  16.  The limitation to contract remedies in this context is the
  general rule in most other jurisdictions, as well.  See, e.g., Nastri v.
  Wood Bros. Homes, Inc., 690 P.2d 158, 163-64  (Ariz. Ct. App. 1984)
  (upholding dismissal of plaintiffs' negligence claim for purely economic
  losses resulting from latent construction defects in their home, while
  reversing dismissal of claim for breach of implied warranty of
  workmanship); Tusch Enters. v. Coffin, 740 P.2d 1022, 1025-26, 1034 (Idaho
  1987) (economic loss resulting from costs to replace or repair structural
  defects to residences were not recoverable under negligent construction
  theory, but would support claim for breach of implied warranty of
  habitability); Redarowicz v. Ohlendorf, 441 N.E.2d 324, 326-27 (Ill. 1982)
  (rejecting tort claim for faulty construction of home, holding that
  economic losses from reduced value or repair costs to home were actionable
  under breach of contract and warranty theories rather than negligent
  construction); Prendiville v. Contemporary Homes, Inc., 83 P.3d 1257, 1263
  (Kan. Ct. App. 2004) (holding that economic loss doctrine barred negligence
  claim against residential contractor for  construction defects where rights
  were governed by express and implied warranties); Calloway v. City of Reno,
  993 P.2d 1259, 1270 (Nev. 2000) (concluding that purely economic losses
  from structural defects in residential townhouses were not recoverable
  under negligence theory), overruled on other grounds by Olson v. Richard,
  89 P.3d 31 (Nev. 2004); Lempke, 547 A.2d  at 291 (reaffirming principle
  precluding tort recovery for economic losses from construction defects in
  home); Maack v. Res. Design & Constr., Inc., 875 P.2d 570, 581 (Utah Ct.
  App. 1994) (economic loss rule barred plaintiffs' action for negligent
  construction to recover for costs incurred from defects in home); see
  generally S. Barrett, Jr., Recovery of Economic Loss in Tort for
  Construction Defects: A Critical Analysis, 40 S.C. L. Rev. 891, 897 (1989)
  (discussing history and rationale of economic-loss rule for construction
  defects and noting "the majority view . . .  denies recovery because any
  damage to the product itself is a commercial expectancy interest protected
  by contract law, rather than tort law").  Accordingly, the trial court
  properly rejected plaintiffs' negligence claim.

       ¶  17.  Plaintiffs further contend the court erred in rejecting their
  attempt to hold defendant Warren Palmer, the sole shareholder of the
  defendant business entities, personally liable under a theory of corporate
  "alter-ego."  The court found that plaintiffs failed to demonstrate that
  the corporate form was being used to perpetrate a fraud or injustice, and
  plaintiffs have cited no evidence or law to undermine this finding.  See
  Agway, Inc. v. Brooks, 173 Vt. 259, 262, 790 A.2d 438, 441 (2001)
  (observing that court may pierce corporate veil only where it is necessary
  to prevent fraud or injustice, and that the court's findings in this regard
  will be upheld only where there is no credible evidence to support them).
          
       ¶  18.  Finally, plaintiffs claim that the court erred in denying
  their request for prejudgment interest.  We have held that an award of
  prejudgment interest is mandatory where damages are liquidated or readily
  ascertainable and otherwise discretionary where the court determines that
  it is necessary to make the plaintiff whole or avoid an injustice.  Estate
  of Fleming v. Nicholson, 168 Vt. 495, 501, 724 A.2d 1026, 1030 (1998). 
  Although plaintiffs here assert that they were unjustly deprived of the
  "full fruits" of the value they paid for their home, they have not shown
  that, in rejecting their request, "the court entirely withheld its
  discretion or that it exercised that discretion for clearly untenable
  reasons or to a clearly untenable extent."  Remes v. Nordic Group, Inc.,
  169 Vt. 37, 39-40, 726 A.2d 77, 79 (1999) (quotations omitted) (rejecting
  claim that court abused its broad discretion in awarding prejudgment
  interest).  Accordingly, we discern no basis to disturb the court's ruling.  

       Reversed and remanded for further proceedings consistent with the
  views expressed herein.


                                       BY THE COURT:


                                       _________________________________________
                                       Paul L. Reiber, Chief Justice

                                       _________________________________________
                                       John A. Dooley, Associate Justice

                                       _________________________________________
                                       Denise R. Johnson, Associate Justice

                                       _________________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _________________________________________
                                       Brian L. Burgess, Associate Justice


------------------------------------------------------------------------------
                                  Footnotes


FN1.   Plaintiffs have not appealed the finding that the policy offered no
  express warranty of quality, and we therefore consider the issue to have
  been waived.

FN2.  As noted, the master indicated that "some" claims were denied as
  outside the one-year reporting period, "some" were denied because they
  complied with contract specifications or were not of an unworkmanlike
  quality, and "some" were denied because they were covered by manufacturers'
  warranties, but apart from a few examples the master made no findings
  specifically identifying which defects fell within which categories.