Center of Life Church v. Nelson ( 2018 )

#28188, #28208-a-SLZ
2018 S.D. 42
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
CENTER OF LIFE CHURCH, Plaintiff and Appellee,
v.
ROBERT NELSON and
DEBRA NELSON, Defendants and Appellants.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA
****
THE HONORABLE MARK E. SALTER
Judge
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MITCHELL A. PETERSON of
Davenport, Evans, Hurwitz,
& Smith, LLP Attorneys for plaintiff and
Sioux Falls, South Dakota appellee.
TIMOTHY A. CLAUSEN
RYLAND DEINERT of
Klass Law Firm, LLP Attorneys for defendants and
Sioux City, Iowa appellants.
****
CONSIDERED ON BRIEFS
APRIL 16, 2018
OPINION FILED 05/30/18
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ZINTER, Justice
[¶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.
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[¶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 SDCL 43-4-37 to -
44. At the urging of their real estate agent, Jay Zea, Nelsons also had
“HouseMaster” perform a home inspection and prepare a report.
[¶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
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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
1. Copies of both the disclosure statement and the home inspection report were
left inside the house for people who came to look at the house.
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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.
[¶13.] In the summer of 2011, the Church hired several contractors to look at
the problem. One contractor used a “snake” camera to inspect the drain pipes that
ran under the yard and driveway. He observed that the pipes were shattered. He
believed that this was caused by inadequate sloping and ice jams that caused water
to build up and freeze in the pipes.
[¶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
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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:
1. Whether the circuit court erred in denying Nelsons’ renewed motion
for judgment as a matter of law.
2. Whether the circuit court abused its discretion denying Nelsons’
motion for new trial.
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The Church raises the following issue by notice of review:
3. 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 SDCL 15-6-50(a)-(b). However, we
recently departed from that standard in favor of de novo review. Magner v.
Brinkman, 2016 S.D. 50 ¶¶ 11-13, 883 N.W.2d 74, 80-81. Ultimately, we apply the
same standard as the circuit court: we view the evidence in the light most favorable
to the verdict or to the nonmoving party. Id. ¶ 14, 883 N.W.2d at 81. Then,
“[w]ithout weighing the evidence, the court must . . . decide if there is evidence that
supports [the] verdict.” Id. “If sufficient evidence exists so that reasonable minds
could differ, judgment as a matter of law is not appropriate.” Id. And because our
review is de novo, we give no deference to the circuit court’s decision. Steineke v.
Delzer, 2011 S.D. 96, ¶ 7, 807 N.W.2d 629, 631.
[¶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
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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.” SDCL 43-4-42. However, “a seller is not liable for a defect or other
condition in the residential real property being transferred if the seller truthfully
completes the disclosure statement.” SDCL 43-4-40.
[¶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
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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 were intended to represent that the problems had been fixed. Therefore,
the dispute at trial and on appeal is a factual one. Did the Church introduce
evidence indicating Nelsons were aware of ongoing water issues that were not
disclosed? If so, the jury could have found that Nelsons’ disclosure statement only
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put the Church on notice of defects and was not a “complete and truthful” disclosure
made in good faith. See Fuller, 2006 S.D. 110, ¶ 18, 725 N.W.2d at 606.
[¶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.
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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 told Mr. Nelson that she wanted to carpet the garage basement, but
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Mr. Nelson suggested she should lay tile instead. Similarly, Mrs. Nelson’s basis for
knowledge of water problems was attacked. She testified that she would have
noticed water problems if they were occurring because she was frequently in the
kitchen basement doing laundry. But the Church pointed out that she failed to
mention this in her deposition and that Nelsons had newer laundry facilities at
other, more convenient places in the house.
[¶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
2. Nelsons contend that upholding the jury’s verdict would impose a strict
liability standard. See Engelhart, 1997 S.D. 124, ¶ 18, 570 N.W.2d at 554
(“We . . . hold that strict liability is not the requisite standard under South
Dakota’s disclosure statutes.”). We disagree. The jury was correctly
instructed that Nelsons could only be liable if the jury found that Nelsons
intentionally or negligently failed to complete the disclosure statement. The
evidence in the record supports such a finding.
3. We review the denial of a new trial under the abuse of discretion standard of
review. Casper Lodging, LLC v. Akers, 2015 S.D. 80, ¶ 45, 871 N.W.2d 477,
492, abrogated on other grounds by Magner, 2016 S.D. 50, 883 N.W.2d 74.
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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 SDCL 19-19-411 (“Evidence that a person was or was not insured
against liability is not admissible to prove whether the person acted negligently or
otherwise wrongfully.”). But here, the witnesses did not testify that Nelsons—the
alleged wrongdoers—had insurance. The witnesses only referenced the Church’s
and HouseMaster’s insurance. Nelsons have not demonstrated how those brief
references to other parties’ insurance suggested Nelsons acted negligently or
wrongfully. They have also not demonstrated how the references to others
insurance indicated that Nelsons had insurance to pay any damages awarded.
Moreover, the circuit court gave a curative instruction. Generally, “if a court
excludes improperly admitted evidence and directs the jury to disregard it, the error
is cured.” Young v. Oury, 2013 S.D. 7, ¶ 18, 827 N.W.2d 561, 567.
[¶33.] Nelsons next argue they were entitled to a new trial because a church
witness both violated the court’s sequestration order and also provided objectionable
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testimony.4 The record reflects that Mark Brooks, a member of the Church, entered
the courtroom during Shaw’s testimony in violation of the court’s sequestration
order. Nelsons also point out that Brooks made an objectionable statement that he
believed a water-sealing primer known as “Kilz” was used by Nelsons in the
basement. However, Nelsons have not shown that they were prejudiced by either
occurrence. Brooks was in the courtroom for only approximately five minutes before
being asked to leave, and he did not recall the subject of Shaw’s testimony. This
record does not suggest that Brooks’s brief time in the courtroom gave him access to
testimony that could have affected his subsequent testimony. Furthermore, the
court sustained Nelsons’ objection to Brooks’s reference to Kilz and instructed the
jury to disregard it. As previously noted, we presume the jury follows such
instructions to disregard excluded evidence. See id.
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. SDCL 43-4-42 authorizes fees in this
type of case. It provides that “the court may award costs and attorney fees to the
prevailing party.” SDCL 43-4-42 (emphasis added). The Legislature’s use of the
4. “Whether a [new trial] should be granted where the court’s sequestration
order is violated is within the discretion of the trial court.” State v. Dixon,
419 N.W.2d 699, 701 (S.D. 1988).
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word “may” makes fee awards discretionary under this statute.5 See In re Groseth
Int’l, Inc., 442 N.W.2d 229, 231 (S.D. 1989) (“Ordinarily, the word ‘may’ in a statute
is given permissive or discretionary meaning. It is not obligatory or mandatory as
is the word ‘shall.’”); Keller v. Keller, 2003 S.D. 36, ¶ 18, 660 N.W.2d 619, 624
(concluding that the decision to award attorney fees under an analogous statute “is
left to the sound discretion of the court”); Berggren v. Schonebaum, 2017 S.D. 89,
¶ 10, 905 N.W.2d 563, 565 (“Normally, an award of attorney fees is reviewed for an
abuse of discretion.”).
[¶35.] The Church, however, contends that the circuit court’s discretion under
SDCL 43-4-42 extends only to the amount of fees that may be awarded rather than
the decision to award them. Relying on several federal cases interpreting an
attorney-fee provision in a civil rights statute (42 U.S.C. § 1988), the Church
contends that “[a]bsent special circumstances, a prevailing party should be awarded
. . . fees as a matter of course.” See Hatfield v. Hayes, 877 F.2d 717, 719 (8th Cir.
1989) (interpreting 42 U.S.C. § 1988 (1989)).
[¶36.] The Church’s reliance on attorney fee awards in federal civil rights
cases is misplaced. The United States Supreme Court limited the discretion of
federal district courts to deny plaintiffs’ attorney fees under the civil rights statute
for one significant reason. The Court did so because it was “necessary to carry out
5. Compare SDCL 21-35-23 (requiring that attorney fees “shall” be allowed in
certain condemnation proceedings); SDCL 15-17-51 (providing that
reasonable attorney fees “shall” be awarded against a party filing certain
frivolous or malicious claims); SDCL 15-6-37 (providing that the court “shall”
award attorney fees in certain discovery matters unless specified conditions
are found); SDCL 34-23A-22 (providing that the court “shall” render
judgment for attorney fees in certain actions relating to abortion).
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Congress’ intention that individuals injured by racial discrimination act as ‘“private
attorneys general,” vindicating a policy that Congress considered of the highest
priority.’” Indep. Fed’n of Flight Attendants v. Zipes, 491 U.S. 754, 759, 109 S. Ct.
2732, 2735, 105 L. Ed. 2d 639 (1989) (quoting Newman v. Piggie Park Enter., Inc.,
390 U.S. 400, 402, 88 S. Ct. 964, 966, 19 L. Ed. 2d 1263 (1968)). But when that
congressional purpose is not present, the Supreme Court recognized that the
presumption of awarding fees as a matter of course does not apply. Christiansburg
Garment Co. v. E.E.O.C., 434 U.S. 412, 418-19, 98 S. Ct. 694, 699, 54 L. Ed. 2d 648
(1978) (imposing more restrictive requirements on those who prevail in the defense
of civil rights claims). Because there is no indication the Legislature intended
South Dakota’s disclosure statutes to incentivize “private attorney general” actions
to vindicate inaccurate home disclosures, we decline to apply the federal civil-rights
presumption here. Such a presumption would also be inappropriate because a 2009
amendment makes clear that even though the Legislature intended to encourage
the disclosure of housing defects, it also intended attorney fees to be awarded to
sellers who prevail in the defense of such claims. See 2009 S.D. Sess. Laws ch. 200,
§ 1 (“An act to allow sellers to receive attorney fees in actions involving the
disclosure statement required for certain real estate transfers.”).
[¶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 § 505 of the Copyright Act, which provides that a
court “may . . . award a reasonable attorney’s fee to the prevailing party” in cases
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involving the improper use of another’s copyright. 17 U.S.C. § 505. The Supreme
Court noted that the statute’s use of the word “may” granted discretion and that the
“automatic awarding of attorney’s fees to the prevailing party would pretermit that
discretion.” Fogerty, 510 U.S. at 533, 114 S. Ct. at 1033. The Court concluded that
nothing in the text or purpose of the statute suggested that Congress intended
“[s]uch a bold departure from traditional practice.” Id. at 534.
[¶38.] The same is true with respect to SDCL 43-4-42. The Legislature’s use
of the word “may” clearly requires the use of discretion in awarding fees. However,
the Church’s request for a presumptive award of attorney fees is essentially an
argument that SDCL 43-4-42 requires application of the “British rule,” which
awards attorney fees to the prevailing party as a matter of course. See Fogerty,
510 U.S. at 533, 114 S. Ct. at 1033. The Supreme Court rejected that argument in
Fogerty, and we must reject it here. Requiring courts to award fees to the
prevailing party as a matter of course in home-disclosure cases would nullify the
Legislature’s express grant of discretion.
[¶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 SDCL § 43-4-42
would not be well-served by an award of attorneys’ fees” in this case. The court did
not believe that Nelsons necessarily acted intentionally—in fact, after listening to
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the evidence, it believed that their position at trial was “fairly debatable.” The
Court also observed there was little evidence of reliance on the disclosure statement
by the Church. Relatedly, the court observed that the Church did not request its
own inspection even though both Raggow and Shaw were real estate agents and
Raggow knew that homes in the area were susceptible to water penetration.
Finally, the court believed that under the facts of this case, an award of fees would
not serve a deterrent purpose. The court believed that Nelsons may not have
understood this Court’s technical, legal distinction between truthful and complete
disclosures. The court ultimately observed that Nelsons’ conduct “was not such a
serious deviation from the statutory disclosure requirements to justify an award of
attorneys’ fees.”
[¶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
6. The Eagle Ridge factors originate from Rule 1.5 of the South Dakota Rules of
Professional Conduct. Rule 1.5 expressly provides that the factors are “to be
considered in determining the reasonableness of the fee.” SDCL ch. 16-18
app. Rule 1.5 (emphasis added). Those factors are:
(1) the time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the
legal service properly;
(continued . . .)
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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.
________________________
(. . . continued)
(2) the likelihood, if apparent to the client, that the acceptance of
the particular employment will preclude other employment
by the lawyer;
(3) the fee customarily charged in the locality for similar legal
services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
(6) the nature and length of the professional relationship with
the client;
(7) the experience, reputation, and ability of the lawyer or
lawyers performing the services; and
(8) whether the fee is fixed or contingent.
Eagle Ridge, 2013 S.D. 21, ¶ 28, 827 N.W.2d at 867.
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#28188, #28208
Conclusion
[¶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.
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