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Stoneledge at Lake Keowee v. IMK Development Co., LLC
Citation: Not availableDocket: 28071
Court: Supreme Court of South Carolina; December 7, 2021; South Carolina; State Supreme Court
Original Court Document: View Document
The Supreme Court of South Carolina addressed an appeal stemming from a construction defect lawsuit involving waterfront townhomes on Lake Keowee, initiated by the Stoneledge at Lake Keowee Owners' Association, Inc. (the HOA) against various defendants, including Marick Home Builders, LLC, and Rick Thoennes. Following a two-week trial, the HOA received favorable verdicts against several defendants, which led to an appeal by Marick Home Builders and Thoennes, among others. The Court of Appeals issued two opinions affirming some aspects and reversing others of the trial court's decisions. In reviewing the appellate decisions, the Supreme Court focused on four key issues: (1) the jury charge, (2) the denial of Marick's directed verdict motions, (3) the trial court's finding of amalgamation, and (4) the calculation of damages. The Supreme Court affirmed the appellate court's rulings concerning the jury charge and the denial of directed verdict motions. However, it reversed the appellate court's decision regarding the finding of amalgamation and also modified the judgment in favor of the HOA, remanding the case for final calculation and entry of judgment consistent with the Court's findings. In 2002, Bostic Brothers Construction, Inc. (Bostic) initiated a luxury townhome project named Stoneledge in Oconee County, divided into Phase I and Phase II, with this litigation focused solely on the thirty-seven units from Phase I. The project was marketed as "quality" and "maintenance free," but homeowners soon faced incomplete constructions, with only a few units completed and sold before Bostic halted operations in late 2004, likened by one homeowner to a "ghost town." In March 2005, to avoid foreclosure, the original development company, Keowee Townhouses, sold Stoneledge—including approximately twenty-five unfinished units—to IMK Development Company, LLC, which consists of Integrys Keowee Development, LLC and Marick Home Builders, LLC. Marick completed Phase I under general contractor Rick Thoennes, with site superintendent Nathan Hornaday noting that most units were finished externally but needed interior work. Building permits obtained indicated costs exceeding $1.4 million to complete the remaining units. Marick also repaired finished units, addressing various homeowner concerns and waterproofing decks. In 2005, IMK established the homeowners' association (HOA) with its board members being IMK representatives, although homeowner interaction with the board was limited. IMK managed the HOA board until September 2008, when control was transferred to the homeowners following IMK’s sale of Stoneledge to S.D.I./Ludwig Corporation, LLC. By late 2008 or early 2009, the homeowner-controlled HOA reported numerous water intrusion repair requests but realized it lacked the funds for necessary repairs. The HOA addressed "emergencies" and hired an engineering firm for further investigation, which uncovered significant water damage in Phase I. In May 2009, the HOA initiated legal action against multiple parties, including developers and contractors, alleging negligence, breach of implied warranties, and breach of fiduciary duty. During a two-week trial, all defendants acknowledged the construction faults, with disputes focusing on repair scope and cost. The HOA's engineer, Derek Hodgin, reported extensive damage and improper installations, advocating for a broad repair scope costing approximately $6.3 million. In contrast, Bostic's expert, Richard Moore, proposed a narrower scope costing around $4 million. Several defendants settled before and during the trial, leaving Bostic, Marick, IMK, IK, Thoennes, Cox, and Lollis as the remaining defendants. The jury awarded the HOA $3 million for negligence against Bostic and IMK/Marick, $1 million for breach of implied warranty against Bostic and Marick, and $1 million for breach of fiduciary duty against IMK, IK, Thoennes, Lollis, and Cox. Confusion arose when the HOA's counsel questioned the cumulative nature of the verdicts, which was not clarified by the court or parties involved. The trial proceeded to apportion damages, with the jury assigning 60% of the negligence liability to Bostic and 40% to IMK/Marick, and 70% of the breach of warranty liability to IMK/Marick and 30% to Bostic. Although IMK was noted on the apportionment form, it was subsequently dismissed from the case while before the court of appeals. The trial court issued a judgment against Bostic and IMK/Marick based on the apportionments and a $200,000 judgment against each of the five defendants found liable for breach of fiduciary duty. Counsel for the HOA informed the trial court of $2,855,911.77 received from settlements with other Phase I defendants. Following post-trial motions, the trial court amended the verdicts to award $5,000,000 for each cause of action, subject to apportionment. The trial court then set off the prior settlements against the new awards. Defendants Marick, Thoennes, and Bostic appealed, leading to two published opinions from the court of appeals: Stoneledge I and Stoneledge II. In Stoneledge I, the court reversed the increased verdicts, affirmed the denial of directed verdict motions, upheld the trial court's finding of amalgamation, and adjusted the final judgments. Cross-petitions for writs of certiorari were granted for both opinions, focusing on the trial court's jury charge, denial of directed verdict motions, amalgamation finding, and damage calculations. Marick contended that the trial court erred in its jury charge by not limiting liability to work performed at Stoneledge and by improperly instructing on breach of implied warranty of habitability, claiming that these errors warranted reversal. The court of appeals upheld the trial court's decisions on these points. Marick also challenged the denial of directed verdict motions regarding the HOA's claims but the court affirmed the trial court's rulings on those as well. The discussion on amalgamation highlighted that actions to pierce the corporate veil or find parties responsible under alter-ego theory are equitable in nature, allowing for a de novo review by the court while recognizing the trial court's superior position for assessing witness credibility. The concept of amalgamation was established in South Carolina case law, illustrating how corporate interests can become blurred among entities. The excerpt details the legal framework surrounding the "single business enterprise theory," previously referred to as the amalgamation theory, as established in Pertuis. The trial court's only decision regarding amalgamation was to deny Marick and Thoennes's directed verdict motion, without making a final ruling on the merits of the amalgamation claim, which was to be adjudicated by the trial court rather than a jury. Although the parties treated the denial as a final finding on the merits during the appeal, the HOA initially sued multiple parties under theories of amalgamation, alter ego, and piercing the corporate veil, but later narrowed its focus to amalgamation against IMK, Marick, and Thoennes. The trial court found sufficient evidence of "self-dealing" to allow the amalgamation issue to proceed to the jury. However, the court of appeals noted that the trial court did not conduct a thorough analysis of the amalgamation claim. Marick and Thoennes contest the court of appeals' affirmation of the trial court's amalgamation findings, with Thoennes specifically arguing there is no legal basis for amalgamating an individual with a business entity. The excerpt cites the Pertuis case, which established that multiple corporations can be viewed as a single enterprise if their operations are unified for a common purpose and maintaining their separate identities would lead to injustice. This theory requires evidence of "bad faith, abuse, fraud, wrongdoing, or injustice" beyond mere operational intertwining. Equitable principles govern the application of the single business enterprise doctrine in South Carolina, requiring careful consideration before its application. The burden of proof rests with the party asserting the existence of a single business enterprise. IMK, a limited liability company formed to hold title to Stoneledge, was co-owned by IK and Marick, each holding a 50% interest. IK's members included Lollis (20%), Cox (40%), and Tim Roberson (40%), while Marick's members were Thoennes and his son, each holding 50%. Lollis, an investor in Stoneledge, claimed minimal involvement with IMK, lacking knowledge of its daily operations or the HOA board's activities. He was unaware of any remaining funds in IMK after its sale of Stoneledge to S.D.I./Ludwig in 2008. Conversely, Cox, a managing member of IK, stated that IK provided investment capital for the project, while Marick was responsible for construction. He indicated that profits from sales were to be split between the entities and highlighted a relationship where some IMK salespeople were not IK employees but operated from IK's offices. Cox also revealed that Marick had pledged profits from Stoneledge as collateral to S.D.I./Ludwig and that IMK was insolvent post-sale, unable to fulfill potential HOA judgments. Thoennes, managing member of Marick, confirmed the financial and operational relationship between IK and Marick, noting that Marick invoiced IMK for construction costs and was primarily responsible for managing the sales team. He acknowledged that unit issues were often brought directly to him rather than through formal HOA channels, and he was a member of the HOA board. Thoennes described his multifaceted roles at Stoneledge, stating that his responsibilities varied daily, leading to confusion among homeowners regarding the distinction between his companies, IMK and Marick. Homeowners Taylor and White indicated they perceived no difference between the two entities, with White noting he only later realized IMK combined elements of IK and Marick. In their directed verdict motion, Marick and Thoennes contested the HOA's claims of corporate veil piercing, amalgamation, and alter ego, arguing against their applicability. The trial court denied their motion concerning amalgamation, citing unresolved factual issues for the jury. Although the court of appeals recognized the trial court's lack of thorough analysis on the amalgamation claim, it affirmed the trial court’s decision, noting evidence of unified operations and self-dealing between Marick and the other parties. The court concluded that Thoennes had constructive knowledge of construction defects while involved in marketing and sales. It held that the operations of Marick and IMK pursued a common business purpose detrimental to HOA members. However, upon review, it was determined that the HOA failed to demonstrate the necessary elements of "bad faith, abuse, fraud, wrongdoing, or injustice" needed to justify treating IMK, Marick, and Thoennes as a single business enterprise, leading to a reversal of the trial court's amalgamation decision. Evidence cited by the court of appeals regarding "bad faith, abuse, fraud, wrongdoing, or injustice" indicated that Thoennes, as principal and license holder of Marick, had constructive knowledge of significant construction defects but was actively involved in marketing and selling the units. The operations of Marick and IMK were driven by a shared business objective, which negatively impacted HOA members. However, the court determined that these circumstances did not justify applying the single business enterprise theory, which requires more than just intertwined operations; it necessitates proof of wrongdoing or injustice. The conduct of Marick, Thoennes, and IMK did not meet this threshold, and the court emphasized that the single business enterprise theory should only be applied in exceptional cases. Consequently, the court reversed the court of appeals' decision and declined to amalgamate the entities or Thoennes with IMK. Regarding damages, all parties contended that the court of appeals incorrectly recalculated the trial court's damages award. The HOA sought to recover costs for repairing Phase I construction, initially claiming $6,309,197 based on expert testimony, while defendants argued for a lower amount of approximately $4,000,000. The jury ultimately awarded the HOA $3,000,000 for negligence against Bostic and IMK/Marick, $1,000,000 for breach of the implied warranty of workmanlike service against Bostic and Marick, and $1,000,000 for breach of fiduciary duty against IMK, Thoennes, Lollis, and Cox. Following the verdicts, there was a significant exchange between the HOA counsel and the trial court regarding the interpretation of the jury's cumulative award against different defendants, but the term "cumulative" was left unexplained. The trial court did not receive requests to inquire about the jury's intentions regarding separate verdict amounts or to resubmit the damages issue with instructions to standardize the amounts across all causes of action. Following the jury's deliberation on apportionment, they found IMK/Marick 40% responsible and Bostic 60% for negligence, while IMK/Marick was found 70% responsible and Bostic 30% for breach of warranty. The initial Form 4 judgment reflected these findings, totaling $3,000,000, $1,000,000, and $1,000,000 for the respective claims. The HOA, having received $2,855,911.77 from other defendants, sought to reform the jury's verdict to treat the awards as cumulative, requesting an increase to $5,000,000 for each claim. The trial court issued a revised Form 4, adjusting the awards accordingly, and subsequently applied the setoff and apportionment provisions. The final judgments on negligence were $2,144,088.23 against Bostic and $857,635.29 against IMK/Marick. For breach of warranty, the amounts were $2,144,088.23 against Marick and $643,226.47 against Bostic. The apportionment statute was not applied to defendants found more than 50% liable, while it was applied to those found less than 50% responsible. For breach of fiduciary duty, judgment amounts of $2,144,088.23 were entered against multiple defendants, reflecting setoff without apportionment. The court of appeals overturned the trial court's decision to raise each judgment to $5,000,000, ruling that this action encroached on the jury's role. The Homeowners Association (HOA) contended that the appellate court erred by not endorsing a "cumulative verdict" for a single damage claim, arguing that the sole damage was the cost to repair the units, with no evidence supporting distinct actual damages across the three causes of action. The HOA maintained that the trial judge correctly reflected the jury's $5,000,000 verdict as a cumulative award for a single damage, irrespective of the cause of action. In its defense, the HOA referenced a now-depublished opinion, Keeter v. Alpine Towers International, Inc., which had been a guiding precedent during the trial. This opinion detailed a case where a jury awarded three separate actual damages for distinct causes of action, which the trial court confirmed were intended to be cumulative. The HOA claimed that the use of "cumulative" by them and the trial court indicated mutual agreement that all three verdicts were effectively $5,000,000. The appellate court disagreed with this assertion, emphasizing that the jury's intent in Keeter was to establish a singular award for the same injury rather than multiple awards. The parties relied on the precedent set in Keeter during the trial, leading the defendants to reasonably interpret the trial court's intention to combine breach of warranty and negligence verdicts against Bostic and IMK/Marick to total $4,000,000, while keeping breach of fiduciary duty verdicts against other defendants at $1,000,000. The court of appeals noted that Marick's assertion that the HOA should elect a remedy among the three causes of action was unpreserved due to a lack of objection during the trial. However, the court agreed with applying a proportional setoff to all defendants, which rendered Marick's argument moot. The HOA acknowledged that it could only receive one actual damages award per cause of action, yet did not request jury clarification on the verdicts. The HOA failed to provide legal support for the trial court's unilateral reformation of the jury's verdict without jury input, relying instead on the court's observations during the trial. It is emphasized that a jury's verdict should be upheld whenever possible, reflecting the jury's clear intent. The court stressed that the trial court overstepped its bounds by reforming the verdicts without a request to inquire about the jury's intentions, highlighting the need for clarity from the jury if the verdict was ambiguous. The court of appeals correctly concluded that the trial court had invaded the jury's province by modifying the verdicts independently. The defendants' silence regarding the trial court's characterization of the verdicts as "cumulative" is deemed insignificant. The court interprets "cumulative" differently than intended by the plaintiff and the trial court, aligning it with precedent from Keeter, which suggested that the verdicts would be combined. No party requested the trial court to clarify the verdicts for consistency, leading to the affirmation of the appellate court's decision that the jury's verdicts stand as delivered. The court highlights that this issue could have been avoided with such a request. Regarding setoff, South Carolina law establishes that there can only be one satisfaction for an injury, mandating that any prior settlement funds received by a settling defendant must be deducted from jury verdicts for the same injury. The right to setoff arises by law when a settlement concerns the same injury. The Uniform Contribution Among Tortfeasors Act codifies this principle, ensuring that a release to one tortfeasor does not absolve others of liability unless specified, while reducing claims against non-settling tortfeasors accordingly. In the case of the breach of fiduciary duty award, the trial court initially applied setoff, but the court of appeals reversed this decision, asserting that the settlements did not cover breach of fiduciary duty damages since those defendants had not been sued for such claims. The current court agrees that setoff is inapplicable for the breach of fiduciary duty award, emphasizing that the settlements received were for the same injury—cost of repair—but also recognizes that setoff does not apply to breaches of trust or fiduciary obligations as specified in the Act. In Rutland v. South Carolina Department of Transportation, it was established that allowing a setoff prevents double recovery for damages, as only one satisfaction for an injury is generally permitted. The common law principle against setoff is contradicted by subsection 15-38-20(G), which prohibits setoff for breach of fiduciary duty awards. This provision is viewed as derogating from common law, which requires strict construction of statutes that limit common law rights. The Act, which governs setoffs related to tort claims, explicitly excludes breaches of fiduciary duty from its application, indicating legislative intent to protect such awards from setoff. Bostic challenged the application of setoff to a breach of warranty award, arguing that it should only apply to the negligence award. The court recognized that while negligence claims are torts and thus under the jurisdiction of the Act, breach of warranty claims are contractual. However, the Act does not prohibit common law setoff from being applied to contract claims, which allows setoff to be applied to breach of warranty awards. Agreement exists among the parties regarding the application of setoff to the negligence award, although there is disagreement on the specific figures to be used for final judgment calculations. Additionally, subsection 15-38-15(A) of the Act addresses the apportionment of liability among joint tortfeasors, clarifying that joint and several liability does not apply to defendants whose fault is determined to be less than fifty percent of the total fault for indivisible damages. A defendant found to be less than fifty percent at fault is liable only for that percentage of damages awarded by the jury, as established by S.C. Code Ann. 15-38-15(A). The statute eliminated pure joint and several liability for defendants with less than fifty percent fault. In a case involving breach of warranty claims, the jury apportioned responsibility between the parties, with Bostic liable for the full negligence verdict of $3,000,000, and Marick liable for $1,200,000 of that amount. Marick was also fully liable for a $1,000,000 breach of warranty verdict, while Bostic was responsible for $300,000. The total jury award was $5,000,000, which included settlements from other defendants totaling $2,855,911.77. The court determined that the setoff should be applied proportionally across the negligence and breach of warranty verdicts. The appellate court initially miscalculated the net judgment remaining after setoff, correcting it to $1,144,088.23. The jury found specific apportionment percentages for each defendant’s liability, leading to final judgment amounts after applying these percentages and the setoff. The final amounts determined were $858,066.17 for Bostic's negligence, $85,806.62 for Bostic's breach of warranty, $343,226.47 for Marick's negligence, and $286,022.06 for Marick's breach of warranty. Thoennes was held liable for $1,000,000 for breach of fiduciary duty without setoff. The court affirmed in part and reversed in part the appellate decision, remanding for final calculations consistent with these findings.