G. Kenneth Campbell v. James E. Huddleston ( 2011 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
November 7, 2011 Session
G. KENNETH CAMPBELL ET AL. v. JAMES E. HUDDLESTON ET AL.
Appeal from the Chancery Court for Anderson County
No. 07CH7666 William E. Lantrip, Chancellor
No. E2011-00174-COA-R3-CV-FILED-DECEMBER 27, 2011
James E. Huddleston and his wife, Patricia M. Huddleston (“the Sellers”), sold their house
to G. Kenneth Campbell and his wife, Teresa J. Campbell (“the Buyers’). The Buyers
inquired of the Sellers as to whether there had been flooding in the house. The Sellers
disclosed that there had been one flood in the basement to a depth of six inches. During the
course of some later renovations, the Buyers became aware the Sellers had indicated, on a
wall stud, that there had been a 1998 flood in the basement to a depth of 38 inches. They
also learned the Sellers had made an insurance claim for another flood in 2003 1 that was
nearly one-foot deep. The Buyers filed this tort action sounding in fraudulent concealment
and fraudulent misrepresentation. The Sellers filed a motion for summary judgment asserting
that, since the Buyers were made aware of the one “six inch” flood, they could not have
relied on the misrepresentations with respect to the full extent of the two flooding events.
The trial court granted the motion and dismissed the case. The Buyers appeal. We vacate
the order granting summary judgment and remand for further proceedings before a different
trial judge.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Vacated; Case Remanded
C HARLES D. S USANO, J R., J., delivered the opinion of the Court, in which H ERSCHEL P.
F RANKS, P.J., and D. M ICHAEL S WINEY, J., joined.
Jennifer L. Chadwell, Oak Ridge, Tennessee, for the appellants, G. Kenneth Campbell and
Teresa J. Campbell.
Kenneth W. Ward, Knoxville, Tennessee, for the appellees, James E. Huddleston and Patricia
M. Huddleston.
1
Apparently, the disclosed “six inch” flood was actually the 2003 flood of nearly one foot.
OPINION
I.
The Sellers’ motion for summary judgment asserts that the Buyers “are unable to show
the element of reasonable reliance in their claim of fraudulent misrepresentation.” The
Sellers’ statement of undisputed facts submitted in support of their motion does not deny that
the property flooded, but asserts, repeatedly, that the Buyers were made aware that the
property had flooded on at least one occasion.
In response to the motion for summary judgment, the Buyers asserted that
a genuine issue of material fact exists as to [the Buyers’]
reliance on misrepresentations made by Defendant James
Huddleston concerning the extent of flooding of the property . . .
in that Mr. Huddleston represented that the interior of the
property only flooded one time to a depth of six inches when
actually the interior of the property flooded twice, once in April
1998 to a depth of 38 inches and again in 2003 to a depth of 11
½ inches. [The Sellers] knew the extent of both episodes of
flooding and knowingly concealed these facts from the [Buyers]
prior to the closing on the property.
The Buyers also filed a statement of undisputed facts, supported with citations to deposition
testimony of the parties, that includes the following:
Prior to closing on this property, Ms. Campbell asked James
Huddleston if the house had ever flooded.
Mr. Huddleston responded that the house had flooded only once
to a depth of six inches.
Mr. Huddleston informed the [Buyers] that he had purchased
flood insurance after the flood because it was so cheap.
The [Buyers] proceeded to purchase the property after deciding
they could install a french drain or landscaping to prevent the
-2-
property from flooding again since it had only flooded six inches
once.
After purchasing this property, Mr. Campbell performed
renovations in the basement and discovered a mark on the wall
stud behind a sheet of waferboard which said “WATER LINE
4/17/98.”
The water line was marked in the basement by Mr. Huddleston
and was 38 inches from the floor.
* * *
Prior to finding this water mark, the [Buyers] had no indication
that the house had flooded 38 inches.
At the time of the closing on the property, the [Sellers] knew
that the basement had flooded 38 inches and never mentioned
this fact to the [Buyers].
The [Sellers] received a small business loan after the 1998 flood
to pay for the damage in the amount of approximately
$10,000.00.
After the 1998 flood, the [Sellers] obtained flood insurance.
The house . . . flooded again in 2003 while the [Sellers] were
living there.
The [Sellers] filed a claim with their insurance company after
the 2003 flood and received payment for the damages in the
amount of $11,669.41.
The basement . . . flooded to an interior depth of 11 ½ inches in
2003.
* * *
-3-
The wall with the water mark was covered with OSB 2 at the
time the [Buyers] looked at the residence.
Prior to the [Buyers] looking at the property, Mr. Huddleston
painted the waferboard which covered the wall stud with the
water line.
There was no visible indication of water intrusion in the
basement of the . . . residence when the [Buyers] looked at the
property.
Neither Mr. Huddleston [n]or Ms. Huddleston ever told the
[Buyers] that the house had flooded to a depth of 38 inches.
(Capitalization in original; paragraph numbering and citations to record omitted; footnote
added.)
The court sustained the motion for summary judgment based on
the record as a whole, including the holding and reasoning of
Israel v. Williams, No. M1999-02400-COA-R3-CV, 2000 Tenn.
App. LEXIS 565, (Tenn. Ct. App. Aug. 22, 2000) . . . . In
particular, the Court found that [the Buyers] were placed on
notice of prior flooding in the basement by the statements of Mr.
Huddleston and by the Tennessee Residential Property
Condition Disclosure Form [note: the form answered both “yes”
and “unknown” to the question of whether the property had
flooding, drainage or grading problems]. Based on this actual
knowledge of the prior flooding in the basement, the [Buyers]
elected to proceed with the sale knowing that there were
potential problems with the basement, and that any reliance
made on the statements of the [Sellers] was unjustifiable in light
of the [Buyers’] actual knowledge about the prior flooding of
the basement at issue.
2
OSB stands for oriented strand board, an engineered wood product formed by layering strands
(flakes) of wood in specific orientations. The finished product has similar properties to plywood. The most
common uses are as sheathing in walls, floors, and roofs.
-4-
After the hearing on the Sellers’ motion, the court approved a statement of the evidence
submitted by the Sellers that stated the court “took all of the pleadings and the deposition
transcripts filed by the parties into consideration as part of the basis for granting the [Sellers’]
Motion for Summary Judgment.” The statement of evidence further purports to articulate
three specific findings that the court made, i.e., (1) that the Buyers were on notice of prior
flooding, (2) that the Buyers elected to proceed knowing there was a potential for flooding,
and (3) that any reliance by the Buyers on the statements of the Sellers was unjustified.
II.
The Buyers timely filed a notice of appeal. They state the following issues:
Whether the trial court erred in granting summary judgment to
[the Sellers] based on the holding of Israel v. Williams.
Whether the trial court’s ruling is against public policy.
III.
The standard of review of a trial court’s order dismissing a case on summary judgment
was recently reiterated by the Supreme Court in Federal Ins. Co. v. Winters, ___S. W.3d
____, No. E2009-02065-SC-R11-CV, ____ S.W.3d ____, 2011 WL 5053138 at *3 (Tenn.
filed Oct. 25, 2011).
. . . [R]eview of a trial court’s entry of summary judgment is a
question of law. Hunter v. Brown, 955 S.W.2d 49, 50–51
(Tenn.1997). In consequence, appellate courts attach no
presumption of correctness to the decision of the trial court and
must review the record de novo to determine whether the
requirements of Rule 56 of the Tennessee Rules of Civil
Procedure have been satisfied. In re Estate of Davis, 308
S.W.3d 832, 837 (Tenn. 2010). A court should grant a party’s
motion for summary judgment only when there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. Tenn. R. Civ. P. 56.04; Hannan
v. Alltel Publ’g Co., 270 S.W.3d 1, 5 (Tenn. 2008); Byrd v.
Hall, 847 S.W.2d 208, 214 (Tenn. 1993). The movant bears the
ultimate burden of persuading the court “that there are no
disputed, material facts creating a genuine issue for trial ... and
that he is entitled to judgment as a matter of law.” Byrd, 847
-5-
S.W.2d at 215. If the motion for summary judgment is properly
supported, then the burden shifts to the non-moving party to
show that a genuine issue of material fact exists. Id. At the
summary judgment phase, “it is not the role of a trial or
appellate court to weigh the evidence or substitute its judgment
for that of the trier of fact.” Martin v. Norfolk S. Ry. Co., 271
S.W.3d 76, 87 (Tenn. 2008) (citing Byrd, 847 S.W.2d at 211).
Once the parties have mustered their proof, the court must “view the evidence in the light
most favorable to the nonmoving party and must also draw all reasonable inferences in the
nonmoving party’s favor.” Staples v. CBL & Assocs., Inc., 15 S.W.3d 83, 89 (Tenn. 2000).
If more than one conclusion can be drawn from the facts presented, summary judgment is not
proper. Id.
IV.
We begin our analysis by recognizing that the question of whether “reliance on
alleged misstatements is reasonable is . . . generally a question of fact inappropriate for
summary judgment.” City State Bank v. Dean Witter Reynolds, Inc., 948 S.W.2d 729, 737
(Tenn. Ct. App. 1996). The dispositive question in the present case, then, is whether the
Buyers’ knowledge that the house had flooded once to a depth of “six inches” precludes, as
a matter of law, any reliance on misstatements concerning the full extent of two floods.
The reasons given by the trial court for its conclusion in this case were its
“consideration” of “all of the pleadings and deposition transcripts filed by the parties” and
“the holding and reasoning of Israel v. Williams, No. M1999-02400-COA-R3-CV, 2000
Tenn. App. LEXIS 565, (Tenn. Ct. App. Aug 22, 2000).” From these various sources, the
court made the express finding that “any reliance . . . on the statements of the [Sellers] was
unjustifi[ed].” From our reading of the record, it appears that the trial court considered the
totality of the deposition testimony and may have – perhaps unwittingly – slipped into the
mode of weighing the evidence favorable to both sides in concluding that summary judgment
was appropriate.
The only facts that should be considered when a court decides whether contested
material issues remain for trial are those that favor the opponent of the summary judgment;
countervailing evidence should be discarded and ignored. Shipley v. Williams, ____ S.W.3d
____ , No. M2007-01217-SC-R11-CV, 2011 WL 3505281 at *4 (Tenn, filed Aug. 11,
2011)(citing Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993)). At the stage in the
proceedings when a grant or denial of summary judgment is being considered, the court must
-6-
avoid weighing the evidence or stepping into the shoes of the trier of fact. Winters, ____
S.W.3d at ____, 2011 WL 5053138 at *3.
Our review of the evidence presently before us persuades us that there are genuine
issues of material fact in this case. The evidence is such that a trier of fact could reasonably
find – and we stress the word “could” – (1) that telling the Buyers that there had been a
singular flood of six inches when in fact there had been two floods, one to a height of almost
twelve inches and another much more serious flood of three feet, two inches, was a
misrepresentation; (2) that the misrepresentation was intentionally made; (3) that the
misrepresentation pertained to a fact material to the judgment of the Buyers, i.e., the
propensity of the property to flood and the extent of the flooding when it did occur; (4) that
the Buyers justifiably relied upon the misrepresentation because they reasonably believed that
flooding potential of no more than six inches could be prevented by the installation of “a
french drain or lanscapping;” and (5) that the Buyers relied upon the misrepresentation to
their detriment and damage. The genuine issues of material fact presented by the record
preclude a grant of summary judgment.
We also conclude that the court’s reliance upon Israel v. Williams, No. M1999-
02400-COA-R3-CV, 2000 WL 1183081 (Tenn. Ct. App. M.S., filed Aug. 22, 2000), is
misplaced. Israel was like the present case in that it involved a seller’s alleged
misrepresentation concerning the “seriousness of . . . water problems in the basement.” Id.
at *2. However, the Israel opinion reveals two obvious and important differences:
. . . [T]he Israels performed their own home inspection, hiring
a professional inspector who found numerous problems with the
basement including mildew, bulging and cracked walls, poor
drainage, signs of damp walls and floors, seepage signs, water
stains, and rotted and decayed wood. . . .
. . . . After reviewing the inspection report the Israels had as
much knowledge about the condition of the basement and the
inside of the basement’s walls as the Williams could. (Mr. and
Mrs. Williams could no more see through the walls and know of
the interior damage than the plaintiffs or their inspector.) Based
on the information in the record and the residential inspection
report, the Israels has as much (or more) knowledge as the
Williams regarding the actual condition of and potential
problems with the basement. . . .
-7-
Id. at *5. In Israel, we found “no evidence that the defendants supplied faulty information.”
Id. In the present case we must accept as true the Buyer’s evidence that there were no visible
problems when they looked at the house. We must also accept as true the evidence that Mr.
Huddleston made a high-water mark 38 inches from the floor and then covered it up so that
it was not visible. Another important difference between Israel and the present case is the
home inspection that gave the Israels knowledge equal to or greater than the defendants. The
Sellers in the present case may argue to the trier of fact that the Buyers knew enough to have
an inspection done, but we cannot conclude, as a matter of law, that they acted in an
unreasonable manner in not having one done.
We are aware of two appellate cases that have upheld jury verdicts based on
misrepresentations concerning the “extent” of flooding in a basement. In Shropshire v.
Roach, No. M2007-02593-COA-R3-CV, 2009 WL 230236 (Tenn. Ct. App. M.S., filed Jan.
30, 2009), the seller of a home disclosed on the property disclosure form that after “a heavy
rain last year [there was] some water in [the] basement.” Id. at *4. When asked about the
flooding by the buyers, the seller stated that the floor had never gotten wet. Id. At trial, the
seller’s son testified that he had to remove standing water from the basement floor with a
shop vacuum. Id. A jury returned a verdict against the seller, and she appealed. On appeal,
she argued, among other things, that the buyers of her home could not have reasonably relied
upon her misrepresentations because they were on notice of water problems with the
basement. Id. This court rejected the seller’s argument, which was based largely on Israel,
and affirmed the jury verdict. Id. In the instant case, the Sellers argue that “[t]he nature of
the misrepresentation made by the seller in the Shropshire case was much greater that the
alleged misrepresentation in this case.” We are not persuaded. Based on the facts we must
credit at this summary judgment stage, the Sellers knew that water in the basement had risen
to 38 inches on one occasion and approximately a foot deep another time and they knew that
they had covered up evidence of the 38-inch flood with a wall. When the Buyers directly
asked about the extent of the flooding, the Sellers said that the water was never over six
inches deep. We suppose, without deciding, that a trier of fact could find that such a
misrepresentation is not material and could not be relied upon, but we do not see how a court
can reach that conclusion as a matter of law.
In Cato v. Batts, No. M 2009-02204-COA-R3-CV, 2011 WL 579153 (Tenn. Ct. App.
M.S., filed Feb. 17, 2011), a severely demented husband and his aged and distracted wife
sold a house after failing to disclose “ ‘sufficient and complete information’ regarding the
defective condition of the basement wall” that resulted in flooding in the basement. Id. at
4. They did disclose, on the written real estate disclosure form, that “Some Water Comes In
Basement Near Front Porch (Hard Rain).” Id. at 2. After closing, the buyers experienced
flooding in the basement during any significant rain event, along with other problems. Id.
at 1. They filed an action for negligent and intentional misrepresentation. The trial court
-8-
found for the sellers on the intentional misrepresentation claim and for the buyers on the
negligent misrepresentation claim. This court affirmed in all respects. Although the Cato
opinion did not discuss the proof as it related to individual elements of the two theories of
recovery, it did conclude that the buyers proved their claim of negligent misrepresentation.
Id. at 7. We characterized the seller’s disclosure that “ ‘some’ water entered into the
basement when it rained” as “true” but a “substantial and material understatement[] of the
water problems and the leaks in the basement . . .” Id. The Sellers attempt in the instant case
to distinguish Cato in numerous unconvincing ways, the most remarkable of which is the
contention that “the nature of the alleged misrepresentation in the present case should not be
categorized as ‘substantial and material understatement.’ ” We have already rejected a similar
argument with regard to Shropshire. We find the purported distinctions to be without merit.
The important point we gather from Shropshire and Cato is that, with regard to a water
problem in a basement, an understatement can be a misrepresentation that gives rise to
reasonable reliance and resulting damages. The Buyers in the present case are entitled to the
opportunity to present that proposition to a trier of fact.
We hold that the trial court erred in granting summary judgment to the Sellers. We
do not find it necessary to address the argument that the judgment should be reversed for
public policy reasons. Our holding demonstrates that there is a sufficient body of law to
protect the public from the kind of misrepresentations alleged. The outcome will, of course,
depend on the proof at trial and the determination of the trier of fact.
V.
Before concluding, we are compelled to reiterate our concern that the trial court
weighed the evidence concerning the materiality of the misrepresentations and the
reasonableness of the Buyers’ reliance on those misrepresentations. Without impugning in
any way the trial judge’s competency or intellectual honesty, we are concerned that, on
remand, it would be difficult for him to put aside the conclusions he reached “on the papers”
when he is called upon to evaluate live testimony – testimony that may well be substantially
the same as that previously before him. We acknowledge that we have raised this concern
sua sponte, but we have the discretion under Tenn. R. App. P. 13(b) to address issues not
raised by the parties in some situations. We are authorized by Tenn. R. App. P. 36(a) to
“grant the relief on the law and facts to which the party is entitled or the proceeding
otherwise requires and [to] grant any relief, including the . . . making of any order” provided
we do not usurp the “province of the trier of fact.” An assignment to a new trial judge will
not run afoul of this provision. Accordingly, we direct that this matter be assigned to another
judge for all proceedings necessary on remand.
-9-
VI.
The judgment of the trial court is vacated. Costs on appeal are taxed to the appellees,
James E. Huddleston and Patricia M. Huddleston. This matter is remanded, pursuant to
applicable law, for further proceedings after assignment to a new judge.
_______________________________
CHARLES D. SUSANO, JR., JUDGE
-10-