Day on Torts

Compensatory damages equal to amount plaintiff paid for home affirmed in fraud case.

Where there was material evidence to show that plaintiff met her required due diligence, the jury verdict for plaintiff on her intentional misrepresentation and fraud claim was affirmed. Further, where the fraud was related to the purchase of plaintiff’s home, and the jury awarded plaintiff the amount she paid for the home in compensatory damages, that award was affirmed.

In Hogue v. P&C Investments, Inc., No. M2021-01335-COA-R3-CV, 2022 WL 17175608 (Tenn. Ct. App. Nov. 23, 2022), the issues revolved around plaintiff’s purchase of a home. Although several defendants were named in the suit, the defendant at issue in this appeal was the real estate agent for the LLC that sold the home. He was also the husband of the person who operated the LLC that sold the home, and he “was involved in the process of making improvements and renovations to the property.” While showing the home to plaintiff’s sister and father, defendant was asked about shoe molding that was missing in the basement, and he responded that the owner would be willing to put that in. He also showed the sister and father a new sump pump located in the garage, and he mentioned that a French drain in the back yard was part of what helped take water out of the parking area. According to plaintiff’s sister and father, defendant did not mention anything about the basement flooding. Defendant, on the other hand, testified that he told plaintiff’s sister and father that the house had experienced three water intrusions but that there had been none since the drainage ditch was installed.

Plaintiff had a professional home inspection, which did not reveal any water issues, and defendant gave her additional information about the sump pump and French drain during a final walk through. Around one month after closing, plaintiff began having repeated, significant water intrusion into her garage and basement. She then filed this suit asserting that defendants did not disclose the history of flooding in the home.

The jury found defendant liable for intentional misrepresentation and awarded plaintiff $243,000 in compensatory damages, which was the purchase price of the home, and $250,000 in punitive damages. On appeal, the verdict for compensatory damages was affirmed, but the punitive award was vacated and remanded for further proceedings.

Defendant raised several issues on appeal, the first being his assertion that “the evidence [was] not legally sufficient to support a finding that [plaintiff] acted with ‘due diligence’ and, therefore, her claim for intentional misrepresentation and fraud ‘should have failed.’” Plaintiff responded by arguing that defendant had waived this argument and that there was material evidence to support the verdict, and the Court of Appeals agreed on both points.

First, the Court of Appeals found that defendant waived his argument that the evidence supporting fraud was not legally sufficient. The Court explained that it had previously held “that a motion for directed verdict must be made at the conclusion of all the proof in order for it to be considered by the trial court on a post-trial motion and by this court on appeal.” (internal citation and quotation omitted). Here, defendant moved for a directed verdict at the close of plaintiff’s proof, but when that motion was denied, he presented his own proof and “he did not move for or renew his motion for a directed verdict” at the close of his own case. While defendant urged the Court to “follow the modern trend taken in federal courts, which no longer requires renewal of a motion for directed verdict at the close of all the proof,” the Court declined to change long-standing Tennessee law. The Court noted that this exact issue had been addressed in a 2020 Court of Appeals case, where the Court stated: “The law in Tennessee is well-established on this issue, and it is not the role of this Court to depart from it.” (internal citation omitted). Accordingly, the Court ruled that, pursuant to Tenn. R. Civ. P. 50, by not renewing his motion for directed verdict at the close of all proof, defendant waived appellate review of whether there was sufficient evidence to support the fraud verdict.

Despite finding that the argument was waived, the Court nonetheless reviewed the issue and found that the jury verdict was supported by material evidence. An intentional misrepresentation claim can be based on fraudulent concealment or fraudulent non-disclosure where “(1) the defendant had knowledge of a material existing fact or condition, and…(2) the defendant had a duty to disclose the fact or condition.” (internal citation omitted). Even where there is a duty to disclose, however, “a party does not have a duty to disclose a material fact where ordinary due diligence would have revealed the undisclosed fact.” (internal citations omitted).

While defendant asserted that there was insufficient evidence to show that plaintiff did her due diligence, the Court disagreed. The Court noted that defendant testified that during the remodel preceding the sale, the LLC had to rip out the basement due to flooding two times, and that both times they repaired it in a way that concealed the issue. Further, the home inspector hired by plaintiff did not find the water issue. Based on these facts, the Court ruled that there was material evidence supporting the jury’s finding that plaintiff acted with due diligence.

After finding that issues related to expert witness testimony and closing arguments were waived due to the failure to contemporaneously object, the Court continued on to consider damages. Defendant argued that the compensatory damages awarded were excessive and should have been based on the cost to repair, but the Court of Appeals disagreed. Looking to a previous Tennessee Supreme Court case and the Restatement (Second) of Torts, the Court noted that damages for intentional misrepresentation are based on “the pecuniary loss to [plaintiff] of which the misrepresentation is a legal cause, including (a) the difference between the value of what he has received in a transaction and its purchase price or other value given for it[.]” (internal citations omitted). The Court also pointed out that “the measure of damages and the fixing of the value of the property are to be determined at the time of the transaction.” (internal citations omitted). Based on this case law, the Court rejected defendant’s argument that the cost of repair was the only available measure of damages.

In this case, plaintiff presented expert proof that, considering the flooding issues, the home as it existed at the time she purchased it had no value whatsoever. An expert testified that if the flooding issue had been fully disclosed, the home could not have been sold and the value would have been zero. Defendant presented no expert of his own to refute this testimony, and the Court therefore ruled that material evidence supported the jury’s finding that plaintiff’s compensatory damages were equal to the amount she paid for the home.

The jury also awarded plaintiff punitive damages in this case. According to the Tennessee Supreme Court, “in jury cases the trial judge must review the jury’s award of punitive damages and clearly set forth the reasons for decreasing or approving all punitive awards in findings of fact and conclusions of law demonstrating a consideration of all factors on which the jury is instructed.” (internal citations omitted). After a jury awards punitive damages, the trial court must review “the award to ensure that the wrongdoer’s conduct rose to the level where punitive damages are appropriate… [and] whether the jury’s findings are supported by clear and convincing evidence and whether the punitive award effectively punishes and deters the defendant from committing the same acts in the future.” (internal citations omitted). Here, there was nothing in the record showing that the trial court properly reviewed the punitive damages award or that it considered the factors outlined in Tenn. Code Ann. § 29-39-104(a)(4). The punitive damages award was therefore vacated and remanded to the trial court for findings as to the factors listed in Tenn. Code Ann. § 29-39-104(a)(4).

This case has some pertinent information regarding due diligence by a plaintiff claiming fraud as well as the proper measure of damages for intentional misrepresentation.

This opinion was released 3.5 months after oral arguments in this case.

Note:  Chapter 40, Section 8 and Chapter 72, Section 1 of Day on Torts: Leading Cases in Tennessee Tort Law has been updated to include this decision.

Day on Torts: Leading Cases in Tennessee Tort Law contains summaries of leading cases on over 500 topics and citations to more than 1500 additional cases.  The 500,000+ word book  (and two others, Tennessee Law of Civil Trial and Compendium of Tennessee Tort Reform Cases) is available by subscription at www.birddoglaw.com and is continually updated as new decisions and statutes impact Tennessee law.  Click on the link to see the book’s Table of Contents.

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