Brooke Buttrey v. Holloway's, Inc.

Citation: Not availableDocket: M2011-01335-COA-R3-CV

Court: Court of Appeals of Tennessee; December 11, 2012; Tennessee; State Appellate Court

Original Court Document: View Document

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A homeowner, Brooke Buttrey, initiated a lawsuit against builders Holloway’s, Inc. and its executives, alleging defective construction of her house, which included claims of breach of contract, intentional misrepresentation, and violations of the Tennessee Consumer Protection Act. The trial court dismissed the Consumer Protection Act claims but found the builders liable for intentional misrepresentation and breach of contract due to substandard workmanship. The court awarded Buttrey the total amount paid for the house and her attorney’s fees. On appeal, the builders contested the damage award, the finding of intentional misrepresentation, and the award of attorney’s fees. The appellate court modified the damages to align with the evidence and reversed the awards for attorney’s fees and intentional misrepresentation. The case originated from a contract signed on June 12, 2003, where the builders committed to constructing the house in a workmanlike manner and adhering to building codes, which included a one-year warranty. Buttrey reported numerous construction issues shortly after moving in, but the builders addressed only minor complaints, leading to the lawsuit filed in October 2004.

Ms. Buttrey, the sole plaintiff following her divorce, filed a complaint in October and subsequently changed her surname to Davis, although she will be referred to as Ms. Buttrey for clarity. She presented testimony and reports from a home inspector, structural engineer, and contractor, all highlighting significant deficiencies in the construction of her home by the Holloways. The home inspector, with experience inspecting 800 to 1,000 homes, stated that Ms. Buttrey’s home exhibited the most defects he had ever encountered. He detailed issues such as cracked interior walls indicating structural problems, improper installation of exterior wood siding leading to water penetration, and several other defects including foundation issues, drainage problems, and improper roof installation.

The structural engineer corroborated these findings, identifying numerous structural deficiencies, including improperly installed floor joists and subfloors, moisture problems in the crawlspace, and violations of building codes. He emphasized that the construction did not meet industry standards and concluded that the house was not built in a workmanlike manner. A contractor provided an estimate for repairs totaling $32,673.79, although he clarified that this amount did not cover the complete repair costs for the home.

After Ms. Buttrey presented her evidence, the Holloways sought a directed verdict on fraud claims and requested the dismissal of her consumer protection claim, arguing insufficient evidence of willful conduct. The court dismissed only the consumer protection claim, allowing Ms. Buttrey to continue with other claims. During the trial, the court independently issued subpoenas for three inspectors involved in code inspections of the Holloways' home construction. Each inspector testified to multiple building code violations, citing issues like the house being "not square" and constructed with "very poor workmanship." One inspector noted that while he eventually passed the house after final inspection, he could not guarantee its condition would remain satisfactory, assessing it a "D minus." He indicated substantial costs would be required to elevate the house to a grade A standard. Other inspectors corroborated findings of non-compliance, including the use of non-standard materials and various construction deficiencies that were not rectified upon reinspection. 

In its ruling, the trial court made key findings, including that Rick Holloway intentionally misrepresented the home's condition and quality, resulting in significant losses for Ms. Buttrey. The court concluded that the home was not constructed in a good, workmanlike manner, further contributing to Ms. Buttrey's losses.

Defendants breached the contract dated June 12, 2003, and the express warranty, causing significant losses to Plaintiff, Brooke Davis (formerly Buttrey). Additionally, Defendants breached the implied warranty of good workmanship and materials, resulting in further losses to the Plaintiff. The court found no evidence to suggest that repairing or modifying the home would cost less than the amount Plaintiff paid, which totaled $143,272. Consequently, the court awarded Plaintiff judgment against Defendants for $143,272, as well as an additional $9,118 for attorney’s fees owed to Stacy S. Neisler. The Holloways appealed, raising three issues: the damages awarded, the attorney’s fees, and the sufficiency of evidence regarding intentional misrepresentation by Mr. Holloway. The appellate review of factual findings is de novo with a presumption of correctness unless evidence suggests otherwise, while legal conclusions are reviewed de novo without presumption. The contract explicitly required work to be completed in a workmanlike manner, and this warranty is implied in contracts for newly built homes unless disclaimed. The trial court determined the house was not built in a workmanlike manner, supporting the conclusion that the Holloways breached the contract. The Holloways did not contest this finding. Regarding the claim of intentional misrepresentation, the Holloways disputed the sufficiency of evidence showing that Mr. Holloway misrepresented the home's condition and quality, which led to Plaintiff's significant losses. The criteria for proving intentional misrepresentation include the existence of a false representation of material fact, made knowingly or recklessly, reasonable reliance by the plaintiff, and resulting damages.

Ms. Buttrey claimed that Mr. Holloway misrepresented his experience as a home contractor before signing the construction contract, stating he portrayed himself as having decades of experience in building homes in Michigan. During the trial, Ms. Buttrey testified that he seemed competent but failed to provide evidence disproving Mr. Holloway's claimed experience. The representations regarding workmanship, akin to a warranty, were seen as future promises rather than past facts, leading to the conclusion that Ms. Buttrey did not establish all elements required for a claim of intentional misrepresentation.

Further, Ms. Buttrey cited instances of alleged misrepresentations made during or after construction, such as being labeled "picky" about defects and Mr. Holloway's knowledge of safety issues with the foundation. However, there was no evidence that these misrepresentations caused damages separate from those due to poor workmanship. The breach of contract by the Holloways did not constitute intentional misrepresentation, warranting a reversal of the trial court’s earlier ruling.

Despite the reversal on misrepresentation, the Holloways were found liable for breaching the contract. The trial court's damages award, which implied compensation for construction defects, did not specify whether it was based on breach or misrepresentation. The award matched the total amount Ms. Buttrey paid under the contract, but the Holloways argued the amount was excessive. They contended that Ms. Buttrey still lived in the house, and the award unfairly placed her in a better position than if the contract had been fulfilled. In breach of contract cases, the claimant bears the burden of proving damages.

On appeal, the appellant must demonstrate that the trial court's findings of fact are unsupported by the evidence presented at trial. The selection of the proper measure of damages is a legal question for the court, reviewed de novo without a presumption of correctness. The purpose of damage assessment in breach of contract cases is to restore the non-breaching party to the position they would have been in had the contract been fulfilled. In construction contract breaches, the general measure of damages available to the purchaser includes either the reasonable cost to complete the construction as per the contract, provided it does not incur unreasonable economic waste, or the difference in value between the contracted product and the actual performance received if completion would involve such waste. Tennessee courts have adopted this measure, favoring the cost of correcting defects or completing omissions unless doing so would require substantial destruction of the existing work. In cases where significant rebuilding is necessary, the measure of damages shifts to the difference in value between the contracted work and the actual performance. Two primary methods for measuring damages when a contractor fails to perform adequately are the cost of repair and diminution in value, with the cost of repair typically being the standard measure unless specific circumstances justify using the latter.

The measure of damages in construction disputes is generally the cost of repairs unless that cost is disproportionate to the reduction in the property's value. If the repairs are deemed unreasonable compared to the diminution in value due to defects, the diminished value may be used instead. The defendant bears the burden to prove that the repair costs are unreasonable in comparison to the property's diminished value; failure to do so means damages should be based on repair costs. In the current case, neither party provided evidence regarding the house's value or the impact of defects on that value, leading the court to determine that the appropriate measure of damages is the repair cost. The court awarded $143,272.00 based on the lack of evidence showing that the repair costs were less than what the plaintiff had paid. However, the plaintiff, Ms. Buttrey, had the burden to prove her damages, including the amount. The trial court's award, equating to the full contract price, is typically reserved for rescission cases where fraud or duress was involved, which was not applicable here since the contract was performed. Thus, it is presumed that the damages awarded were intended to cover the costs necessary to repair the defects and conform the house to the contractual standards. The fact that Ms. Buttrey has lived in the house since 2003 suggests it has some value, contrary to the absence of evidence needed to justify the full contract price as damages.

The Holloways contend that the trial court erred by awarding damages exceeding the proven cost of necessary repairs, which were significantly lower than the awarded amount. Damages are factually driven and reviewed de novo, with a presumption of correctness unless evidence suggests otherwise. The contractor estimated the repair costs at $32,673.79, based solely on the structural engineer's report, while Ms. Buttrey provided evidence of $4,092.38 in related expenses, including payments for inspections and partial repairs. The trial court awarded $143,272, but there was no testimony or evidence supporting that the house had no value or required such an extensive repair cost. The only specific evidence for repair costs totaled $36,766.17, and the contractor indicated that his estimate did not encompass additional problems or resultant damages from the identified construction defects. He acknowledged that determining the total repair costs would require a thorough examination of all relevant reports and potential hidden damages, implying that the actual necessary repairs could exceed his initial estimate.

The trial court in this case sought to determine the cost of bringing a house up to grade A standards, with an inspector indicating that it would require a substantial amount of money. Ms. Buttrey, however, failed to provide specific evidence regarding the costs of repairing the identified issues. While she demonstrated that damages existed, the total amount remained uncertain. The Tennessee Supreme Court clarified that while the existence of damages must be certain and not speculative, the amount may be uncertain if the plaintiff lays a sufficient foundation for the trier of fact to assess damages reasonably. The burden to prove damages lies with the plaintiff, who must provide evidence that is sufficiently certain to allow for a fair estimation of damages, though exact amounts are not required. The court found that the evidence did not support the trial court’s award of $143,272 for repair costs, noting that while Ms. Buttrey provided some specific repair costs, she did not substantiate the total costs or provide a reasonable estimate for additional repairs, making the awarded amount unjustifiable.

Sufficient evidence was required for the trial court to assess the total cost of necessary repairs due to substandard workmanship. The review revealed that significant repairs were excluded from the contractor's estimate, and their cost is expected to equal the included repairs. Consequently, the damages awarded to Ms. Buttrey were modified to $73,532.34, which accounts for the contractor's estimate, additional repair costs, and her out-of-pocket expenses.

Regarding attorney’s fees, the trial court awarded them to Ms. Buttrey without providing a basis, which is problematic under Tennessee’s American Rule that mandates litigants cover their own fees unless specified by statute or contract. Ms. Buttrey sought fees under the Tennessee Consumer Protection Act (TCPA), but her claim was dismissed, negating her right to fees under that statute. The contract between the parties also did not include provisions for attorney’s fees. Attempts to classify attorney’s fees as special or punitive damages were unconvincing; special damages were not applicable, and punitive damages were not awarded due to a lack of evidence of the Holloways' malicious intent.

Ultimately, the court found no justification for the award of attorney’s fees and reversed that decision. The overall conclusion included a modification of Ms. Buttrey’s breach of contract damages to $73,532.34, a reversal of the attorney’s fees award, and a reversal of the finding that the Holloways intentionally misrepresented material facts. The costs of the appeal were assigned to the appellants, Holloway’s, Inc., Rick Holloway, and Jennifer Holloway.