Travis Goodman v. Kathy Jones Kelly ( 2008 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
June 19, 2008 Session
TRAVIS GOODMAN, ET AL. v. KATHY JONES KELLY
Appeal from the Circuit Court for Morgan County
No. 6477-C Russell E. Simmons, Jr., Judge
No. E2006-2678-COA-R3-CV - FILED OCTOBER 30, 2008
Travis and Stephanie Goodman (“Buyers”) filed a lawsuit for monetary damages or
rescission of a residential deed due to defects in a septic system. Buyers sued under the theories of
breach of contract, misrepresentation, fraud and violation of the Tennessee Consumer Protection Act.
Buyers argue that they did not plead a violation of Tenn. Code Ann. § 66-5-208 (2004) of the
Tennessee Residential Property Disclosures Act; however, the trial court treated the case as one
under the Act. The jury returned a verdict for Seller. Reviewing the record de novo, we hold that
the theories of breach of contract and negligent misrepresentation were pleaded and supported by
the proof. These causes of action should have been charged to the jury. We also hold that the parties
litigated the issue of intentional misrepresentation and that the trial court charged the jury on this
issue. In addition we hold that material evidence supports the jury’s verdict for Seller under theories
of intentional or willful misrepresentation of the condition of the subject property under the statute
or common law. Accordingly, we affirm in part, vacate in part and remand with instructions.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed in Part and Vacated in Part; Case Remanded with Instructions
CHARLES D. SUSANO ,JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS, P.J,
and SHARON G. LEE, SP.J., joined.
Glenna W. Overton, Knoxville, Tennessee, for the appellants, Travis Goodman and Stephanie
Goodman
Joe R. Judkins, Wartburg, Tennessee, for the appellee, Kathy Jones Kelly
OPINION
In May 2004, Buyers purchased a 14-year-old house in a subdivision, from Seller for
$86,500. Seller had been the only prior owner of the residence. Several weeks after moving into
the residence, Buyers discovered two inches of water in the crawlspace. Within three months of
moving into the house, Buyers had problems with the septic system. The shower would not drain,
and, at times, the commode would not flush and would overflow. When Buyers did laundry, water
backed up into the bathtub. On at least one occasion when Buyers did laundry, sewage backed up
into the tub. Because of health concerns, Buyers took their young child to another house for bathing.
Buyers found water in the crawlspace on numerous times, and sometimes they also found
sewage. After heavy rain, water would stand on the property for days at a time and the septic system
did not work. Buyers put a fan in the crawlspace and diverted the water from gutters away from the
septic system. These attempts did not solve the problems. Buyers also had the septic system
pumped twice in November 2004 and learned at that time that water in the drain field was running
into the septic tank.
In April 2006, Buyers had the septic tank pumped again, and as water was pumped from the
tank, the tank would immediately fill up with clear water. Buyers videotaped the pumping, and the
videotape was shown to the jury. In about an hour, the septic company employee pumped some
1,860 gallons of water out of a 900-gallon septic tank.
Following this, Buyers moved out of the house to a rented house and sued Seller for fraud,
misrepresentation – which we construe to include both negligent and intentional conduct, breach of
contract and violation of the Tennessee Consumer Protection Act. In their complaint, the Buyers
alluded to the Seller’s “Tennessee Residential Property Condition Disclosure” although they did not
specifically mention that which created the form – the Tennessee Residential Property Disclosure
Act, Tenn. Code Ann. § 66-5-201, et seq. Buyers acknowledge in their brief that the Tennessee
Consumer Protection Act claim was correctly dismissed by the trial court.
At trial, Buyers called as an expert witness a civil engineer. He testified that the subdivision
was built on a valley floor, surrounded by hills and low mountains. The effect of the surrounding
topography was to create a sort of bowl with the Buyers’ home being on one of the lowest lots in the
subdivision. The expert noted that there had been no change in the watershed since the home was
constructed. He also relied on records of the Health Department that showed there was a study of
the subdivision in 1990 that found most of the houses in the subdivision had, or were having, failures
of their septic systems due to excess groundwater.
The civil engineer had seen the videotape of the April 2006 pumping of the septic tank and
expressed his opinion that the septic system drain field was working in reverse. Instead of dispersing
liquids from the septic tank, it was functioning as a conduit for the groundwater to fill up the tank.
Thus, the groundwater was filling the septic tank faster than the water in the tank could be pumped
out by the septic company.
The expert testified that the groundwater level at the property fluctuates somewhat
seasonally, but the real problem is a confining layer of soil that is several feet underground and
prevents water from seeking a deeper zone. The expert stated that:
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[i]t is my opinion that the problem with the septic tank will occur at
any time that the water table in the neighborhood is higher than the
elevation of the drain field. I saw no evidence in my site visit to the
neighborhood to indicate that this was a recent phenomenon. And it
is my opinion that this has likely been going on since the subdivision
was constructed.
In reaching his opinions, the expert had also examined and relied on water-use records for
the property. He testified that the average water use per person in the United States is 100 gallons
a day or 3,000 gallons a month. From January 2000 through June 2004, there were four months in
which Seller used only 200 gallons a month – this would be approximately one flush of the
commode per day. During the time Buyers were considering buying the property, Seller’s water
usage was merely 200 to 1,000 gallons a month. The expert thus expressed the opinion that Buyers
could not have determined whether the septic system was damaged, and a home inspector could not
have discovered the damage without digging up the system. A home inspection was made in this
case, but the home inspection is based on visual inspection and did not include the septic system.
Buyers’ expert also testified that shallow groundwater contaminated with sewage entering
the crawlspace could cause a health hazard. In addition, he said that the system cannot be corrected,
because the groundwater table is higher than the septic tank. When he was asked, based on
everything that he had reviewed, whether it was it possible for Seller to reside in the house for 14
years without experiencing a problem, the expert responded, “[T]hat’s not possible.”
As part of their proof, Buyers submitted the Tennessee Residential Property Condition
Disclosure that Seller filled out prior to the sale. One question on the disclosure form was, “Are you
(Seller) aware of any defects/malfunctions in [sewer/septic]?” Given the choices of “yes,” “no” and
“unknown,” Seller answered “no.” In another section of the disclosure form, Seller was asked, “Are
you (Seller) aware of any of the following,” with one of the following categories being “flooding,
drainage or grading problems?” Once again, given a choice of answering, “yes,” “no,” or
“unknown,” Seller answered “no.” In addition, to a question whether the septic tank meets “present
state and local requirements for the actual land area and number of bedrooms and facilities existing
at the residence[,]” Seller answered “yes.” Seller attested that the information supplied was “true
and correct [to] the best of my/knowledge as of the date signed.” In the sales contract, Seller
warranted that the septic system (along with a number of other systems) would be working on the
date of the closing.
Seller testified that water would stand on the property for two to three days. She said that
she never inspected the crawlspace and did not know if water or sewage were in it. Seller testified
that she was often away on weekends. She also said that she had contracted for the original
construction of the house, which came with a one-year warranty, and there were no problems with
the septic system during the period of the warranty.
Seller testified that, during the entire time she owned the property, she had no problems with
the septic system and that there were no signs indicating there might be a problem with the system.
Seller had no repairs performed on the septic system and had not had the septic tank pumped. A
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woman who cleaned Seller’s house, and came to the house regularly, testified that she had seen no
problem with the septic system. Neighbors also testified that they had seen no problem with the
system. Seller’s fiancé, who was at the house regularly, was not aware of any septic system
problems and neither was the home builder. Although the Health Department had done a study, no
one at the Department had ever contacted Seller. And Buyers’ home inspector and appraisers for
Buyers’ lender did not uncover a problem.
Seller also established that the home inspection could have included a septic system
inspection if Buyers had requested it. Also, Buyers waived their right to purchase a home warranty
that would have cost around $300. Seller did not produce an expert witness.
II.
The following issues are stated by the Buyers:
1. Whether the trial court erred by not charging the jury with the
definitions of breach of contract, misrepresentation, fraud and
negligent misrepresentation.
2. Whether the trial court erred by holding that the burden of proof
was clear and convincing evidence.
3. Whether the jury verdict was contrary to the weight of the evidence
presented at trial.1
III.
Our standard of review as to findings of fact by a jury in a civil action is limited to
determining whether there is material evidence to support the verdict. See Tenn. R. App. 13(d).
Appellate courts do not determine the credibility of witnesses or weigh the evidence on appeal from
a jury verdict. See Pullen v. Textron, Inc., 845 S.W.2d 777, 780 (Tenn. Ct. App. 1992) (citing
Crabtree Masonry Co. v. C & R Constr., Inc., 575 S.W.2d 4, 5 (Tenn. 1978)). With respect to
factual issues, a judgment based on a jury verdict will not be disturbed on appeal when the record
contains material evidence supporting that verdict. See Reynolds v. Ozark Motor Lines, Inc., 887
S.W.2d 822, 823 (Tenn. 1994).
The determination whether jury instructions are proper is a question of law that this court
reviews de novo with no presumption of correctness. See Solomon v. First Am. Nat’l Bank of
Nashville, 774 S.W.2d 935, 940 (Tenn. Ct. App. 1989). The determination is crucial because
1
These issues were preserved for appeal when Buyers raised them in a motion for a judgment notwithstanding
the verdict or for a new trial, and the motion was denied.
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the soundness of every jury verdict rests on the fairness and accuracy
of the trial court’s instructions. Since the instructions are the sole
source of the legal principles needed to guide the jury’s deliberations,
trial courts must give substantially accurate instructions concerning
the law applicable to the matters at issue.
Ladd v. Honda Motor Co., Ltd., 939 S.W.2d 83, 94 (Tenn. Ct. App. 1996) (citations omitted). We
consider the jury charge as a whole, and we will not invalidate it if it fairly defines the legal issues
in the case and does not mislead the jury. See Hunter v. Burke, 958 S.W.2d 751, 756 (Tenn. Ct.
App. 1997) (citations omitted).
IV.
A.
Buyers argue that the trial court erred in failing to charge the jury with respect to the theories
of breach of contract, misrepresentation, fraud and negligent misrepresentation. They argue that the
trial court instead charged the jury solely concerning a violation of Tenn. Code Ann. § 66-5-208 of
the Tennessee Residential Property Disclosure Act.
Seller argues that the trial court charged the jury under the theories of misrepresentation and
fraud, but does not cite to the record. After reviewing the charge as a whole, it is clear that the trial
court did not charge the jury on the theories of breach of contract or negligent misrepresentation,
but the court did instruct the jury under Tenn. Code Ann. § 66-5-208, giving a generic instruction
on intentional misrepresentation.
The trial court’s charge as to misrepresentation was as follows:
[Buyers] seek rescission of the sale of the home for alleged
intentional misrepresentation of [Seller]. To have the sale rescinded,
[Buyers] must prove by clear and convincing evidence each of the
follow[ing] elements:
No. 1, that [Seller] made a representation of a present or past material
fact on the Disclosure Statement entered as Exhibit 2.
No. 2, that the representation was false.
And No. 3, that [Seller] knew the representation was false when it
was made.
And No. 4, that . . . [Seller] intended that [Buyers] rely upon the
representation and act or not act in reliance on it.
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And No. 5, [Buyers] did not know that the representation was false,
and [were] justified in relying upon the truth of the representation.
And No. 6, as a result of [Buyers’] reliance upon the truth of the
representation, [Buyers] sustained damage.
The charge the court gave does not precisely parallel the language of Tenn. Code Ann. § 66-5-208.
It is essentially identical to the the Tennessee Pattern Jury Instruction on “Intentional
Misrepresentation” requested as “Plaintiffs’ Jury Instruction Number 6.” Buyers’ requested
instruction states:
1. [Seller] made a representation of a present or past material fact;
and
2. The representation was false; and
3. [Seller] knew that the representation was false when it was made;
and
4. [Seller] intended that [Buyers] rely upon the representation and act
in reliance on it; and
5. [Buyers] did not know that the representation was false and [were]
justified in relying upon the truth of the representation; and
6. As a result of [Buyers’] reliance upon the truth of the
representation, [Buyers] sustained damage.
T.P.I. 3 – Civil 8.36.
In the complaint at a section titled “Allegations of Liability,” Buyers allege:
18. The Defendant perpetrated a fraud by failing to disclose, through
the Tennessee Residential Property Condition Disclosure, a
defect/malfunction of the septic system that existed since the
residence was constructed.
19. The Defendant misrepresented by failing to disclose, through the
Tennessee Residential Property Condition Disclosure, that there were
no defects/malfunctions of the septic system.
20. The Defendant misrepresented by failing to disclose, through the
Tennessee Residential Property Condition Disclosure, that there was
no drainage, flooding or grading problems.
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21. The Defendant has breached the Sales Contract by the fraud and
misrepresentation contained in the Tennessee Residential Property
Disclosure.
Although Buyers argue that they stated no cause of action for violation of Tenn. Code Ann. § 66-5-
208 of the Tennessee Residential Property Disclosure Act, a review of paragraphs 18-21 of the
complaint makes clear why both Seller and the court concluded that a statutory cause of action was
pleaded.2
There is nothing in the record before us showing that the trial court failed to recognize and
charge the Buyers’ theory of common law fraud or intentional misrepresentation. In fact, the court
gave the jury a generic but complete charge on the subject of intentional misrepresentation. Under
the facts of this case, we hold that the Buyers’ theory of common law fraud or intentional
misrepresentation3 was fully litigated, correctly charged, and resolved by the jury’s verdict. Cf.
Tenn. R. Civ. P. 15.02 (2007) (when issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as if they had been raised in the
pleadings); Redbud Coop. Corp. v. Clayton, 700 S.W.2d 551, 558 (Tenn. Ct. App. 1985) (implied
consent found to try all legal theories against developers where legal theories pursued were unclear
to both parties and the court). The jury found in favor of Seller. As a result, there is no remaining
cause of action based on intentional misrepresentation under the Tennessee Residential Property
Disclosure Act or the common law.
A trial court should instruct the jury upon every issue of fact and theory of the case that is
raised by the pleadings and is supported by the proof. Ward v. Glover, 206 S.W.3d 17, 40 (Tenn.
Ct. App. 2006); Street v. Calvert, 541 S.W.2d 576, 584 (Tenn. 1976); Spellmeyer v. Tenn. Farmers
Mut. Ins. Co., 879 S.W.2d 843, 846 (Tenn. Ct. App. 1993). Reviewing the record de novo, we find
that Buyers alleged, and the proof supported, the common law theories of breach of contract and
negligent misrepresentation. The trial court erred in not letting those two theories go to the jury. We
thus affirm in part and vacate in part. The case is remanded for a new trial on the issues of breach
of contract and negligent misrepresentation.
B.
Seller argues in this court that the trial court correctly required Buyers to elect a remedy prior
to the case being submitted to the jury. Seller relies on Concrete Spaces, Inc. v. Sender, 2 S.W.3d
901 (Tenn. 1999), for the proposition that when there is a danger of a double recovery, there must
be an election of remedies. It would appear, however, that Seller’s definition of double recovery is
different from that of the Supreme Court in Concrete Spaces. Seller seems to use the term “double
recovery” to mean recovery under more than one theory – i.e., a party cannot pursue alternate
2
No issues concerning abrogation of common law, exclusive remedy or the like are raised in this appeal.
3
Intentional misrepresentation, fraudulent misrepresentation, and fraud are synonymous. Concrete Spaces, Inc.
v. Sender, 2 S.W.3d 901, 904, n 1. (Tenn. 1999).
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theories for recovery. Under the Supreme Court’s use of the term, however, a party can pursue
alternative theories of recovery but can collect under only one theory. The Supreme Court states that
a “double recovery may occur if the jury decides that the plaintiff is entitled to both punitive
damages and multiple damages.” Id. at 906. Statutory treble damages would be an example of
“multiple damages.” The reason for the rule is that recovery of both multiple statutory damages and
punitive damages constitute “an impermissible double recovery because the two forms of enhanced
damages serve the same functions.” Id.
In this case, contrary to Seller’s argument, there was no danger of a recovery of both punitive
and multiple statutory damages, because the Tennessee Residential Property Disclosure Act does
not allow for any multiple statutory damages and the trial court did not instruct the jury concerning
punitive damages. See generally Tenn. Code Ann. § 66-5-208 (purchaser’s remedies for owner’s
misrepresentation on residential property disclosure statement shall be actual damages, termination
of sales’ contract if discovery of misrepresentation precedes closing or other remedies available at
law or equity for intentional or willful misrepresentation.)
Prior to trial, Seller moved the trial court in limine “for an Order requiring [Buyers], prior
to empanelling [sic] a jury, to elect which remedies [Buyers] are seeking.” (Emphasis added.) It is
clear from reviewing the jury charge that the trial court required an election of remedies prior to
giving the case to the jury and thus gave no instructions on the various damages available under the
common law theories of negligent misrepresentation and breach of contract. Rather, the trial court
instructed the jury solely as to the remedy of rescission. The jury was instructed to return a general
verdict as follows:
If you find in favor of [Buyers], your verdict will be, “We find in
favor of [Buyers] and award [Buyers] rescission of their purchase of
the residence from [Seller].” If you find in favor of [Seller], your
verdict will be, “We find in favor of [Seller].”
The jury was given no opportunity to award monetary damages.
The procedure followed in this case is directly contrary to the instructions of the Supreme
Court in Concrete Spaces. Furthermore, Seller’s reliance on Concrete Spaces is misplaced. In this
case Buyers were required to make an election of remedies prior to the case being submitted to the
jury. In Concrete Spaces, the Supreme Court explicitly rejected the minority rule, which “requires
plaintiffs to make an election of remedies before the issues are submitted to the fact finder.”
Concrete Spaces, 2 S.W.3d at 909 (citations omitted). To the contrary, the High Court adopted the
rule that does not require an election of remedies until the jury has returned a verdict, stating:
We agree with the reasoning of the majority of jurisdictions
confronted with the issue that it would be unfair to require election
before a determination of liability and entitlement to punitive
damages and multiple damages has been made. In so concluding, we
agree . . . that this approach does not unduly burden a defendant who
has been found liable under more than one theory of recovery. The
majority rule simply allows a plaintiff to realize the maximum
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recovery available under the fact finders’ findings. Given the
punitive and deterrent purposes of punitive and multiple damages,
such a result is entirely proper.
The majority approach is also consistent with our Rules of Civil
Procedure, which reflect the notion that plaintiffs are free to pursue
several alternative theories of recovery and to structure their claims
in the manner that is most beneficial to them. Again, the election of
remedies doctrine serves only to prevent double redress for a single
wrong. (Citations omitted.) If a defendant has been found liable
under more than one theory of recovery, no inequity results from
allowing the plaintiff to choose one of the claims upon which to
realize its maximum recovery of enhanced damages. In other words,
no danger of double recovery exists unless the plaintiff actually
realizes satisfaction of both forms of enhanced damages. (Citation
omitted.)
Id. The Supreme Court also noted that Tenn. R. Civ. P. 8.01 specifically provides that “relief in the
alternative or of several different types may be demanded.” Id. at n 12 (quoting Tenn. R. Civ. P.
8.01)).
In Concrete Spaces, the Supreme Court set out explicit procedures to be followed by a court
in circumstances where it must give jury instructions concerning multiple common law theories and
a statutory theory or theories that have different elements, damages and burdens of proof. Concrete
Spaces, 2 S.W.3d at 909-11. For example, the Court stated:
Courts should provide separate jury instructions for each theory of
liability that clearly explain the elements of each claim, thus enabling
the jury to consider whether the plaintiff has met its burden of proof
with respect to each. The standards for any available enhanced
damages should be explained in conjunction with the instructions for
each underlying theory of recovery. For example, the intentional,
fraudulent, malicious or willful standard for punitive damages
required by Hodges, 833 S.W.2d at 900-901, should be explained
within the separate instructions for the underlying common law
claims. Likewise, if the jury is to decide the requisite culpability for
multiple damages under a statute, an explanation of that standard
should be given in conjunction with the instructions for that particular
statutory claim.
As the Court of Appeals in this case recognized, the most effective
approach in dealing with multiple claims for relief is to require the
jury to respond either to a general verdict form accompanied by
special interrogatories or to a special verdict form that has been
prepared to parallel the instructions to the jury on each claim.
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Id. at 910. In contravention of the holding in Concrete Spaces, the trial court required Buyers to
elect a remedy prior to trial instead of waiting until after the jury returned a verdict on all theories.
Upon remand for trial on the theories of negligent misrepresentation and breach of contract, no
election of remedies shall be required prior to trial and the procedures set out by the Supreme Court
in Concrete Spaces for charging the jury shall be followed.
C.
In this case, Buyers also raise the issue that the trial court erred by failing to give Plaintiffs’
Jury Instruction Number 4, on preponderance of the evidence. Preponderance of the evidence is the
burden of proof required in actions for negligent misrepresentation and breach of contract. As
previously noted, the trial court refused to give Buyers’ jury instruction for the theories of negligent
misrepresentation and breach of contract; thus, it also failed to instruct the correct burden of proof
(preponderance of the evidence) for these causes of action. At the retrial on remand, the trial court
shall instruct that the burden of proof as to those theories is preponderance of the evidence.
D.
The remaining issue raised by Buyers is that the jury verdict was contrary to the weight of
the evidence presented at trial. With respect to factual issues, a judgment based on a jury verdict will
not be disturbed on appeal where the record contains material evidence supporting that verdict. See
Reynolds v. Ozark Motor Lines, Inc., 887 S.W.2d 822, 823 (Tenn. 1994) (citations omitted). In this
case there was evidence favorable to Seller that was sufficient to sustain a verdict for Seller on the
theory of intentional misrepresentation, whether under the common law or for violation of Tenn.
Code Ann. § 66-5-208. Accordingly, we affirm the jury’s verdict.
V.
The judgment of the trial court is affirmed in part and vacated in part. The case is remanded
for further proceedings, with instructions. Costs of this appeal are taxed against the appellee, Kathy
Jones Kelly.
_______________________________
CHARLES D. SUSANO, JR., JUDGE
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