Denourie & Yost Homes, LLC v. Frost

• Citation: 295 Neb. 912,893 N.W.2d 669
• Decision Date: 24 February 2017
• Docket Number: No. S-16-014.,S-16-014.
• Court: Supreme Court of Nebraska
• Parties: DENOURIE & YOST HOMES, LLC, a Nebraska limited liability company, appellant, v. Joe FROST and Amy Frost, husband and wife, and Security State Bank, doing business as Dundee Bank, a Nebraska corporation, appellees.

295 Neb. 912

893 N.W.2d 669

DENOURIE & YOST HOMES, LLC, a Nebraska limited liability company, appellant,

v.Joe FROST and Amy Frost, husband and wife, and Security State Bank, doing business as Dundee Bank, a Nebraska corporation, appellees.

No. S-16-014.

Supreme Court of Nebraska.

Filed February 24, 2017.

Jerrold L. Strasheim for appellant.

Christopher J. Tjaden, Michael J. Whaley, and Adam J. Wachal, of Gross & Welch, P.C., L.L.O., Omaha, for appellee Security State Bank.

Kristopher J. Covi and Jay D. Koehn, of McGrath, North. Mullin & Kratz, P.C., L.L.O., Omaha, for appellees Joe Frost and Amy Frost.

Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy, Kelch, and Funke, JJ.

Cassel, J.

INTRODUCTION

We address a second appeal from an action by a contractor seeking damages arising out of its construction of a house. Following our remand, the district court determined that the election of remedies doctrine and judicial estoppel required a dismissal of the contractor's claims. Because the claims were consistently premised on the existence of a contract, no election was required. And because the claims were based on different facts and obligations, both could be pursued. We therefore reverse, and remand for further proceedings.

BACKGROUND

NEW HOME CONSTRUCTION

In 2004, Joe Frost and Amy Frost obtained two loans for the construction of a new home. Security State Bank, doing business as Dundee Bank (the bank), was not the lender on either loan. In 2005, construction on the new home stopped. In 2007, the Frosts entered into a "Project Completion Agreement" with deNourie & Yost Homes, LLC (D&Y), under which they agreed to pay D&Y $325,630 in return for completion of the new home construction. At that time, Joe had a business relationship with the bank, in which the bank loaned Joe money. The Frosts defaulted on payments owed to D&Y and on both loans. Ultimately, the house was sold at foreclosure, and the Frosts filed for bankruptcy with no assets.

PROCEEDINGS ON FOURTH AMENDED COMPLAINT

D&Y filed a fourth amended complaint against the Frosts and the bank. It alleged five causes of action: breach of contract against the Frosts; fraud, concealment, and nondisclosure against the Frosts; civil conspiracy against the Frosts and the bank; equitable estoppel against the bank; and promissory estoppel against the bank.

The bank moved for summary judgment, and the Frosts moved for partial summary judgment on the fraud and civil conspiracy causes of action. The district court sustained the motions as to D&Y's claims of fraudulent concealment and conspiracy. Because the court found that the fraudulent concealment claim against the Frosts failed as a matter of law, the court determined that there could be no conspiracy claim against the Frosts. With regard to the civil conspiracy claim against the bank, the court stated that "D&Y did not assert a cause of action for the underlying tort of fraudulent concealment against [the bank], and therefore, it cannot sustain a cause of action for conspiracy." This left remaining the claim against the Frosts for breach of contract and the claims against the bank for equitable estoppel and promissory estoppel.

At the commencement of a bench trial on the remaining issues, the Frosts made an oral motion to confess judgment on D&Y's breach of contract claim in the amount of $245,000. The district court entered an order granting a judgment in favor of D&Y and against the Frosts in the amount of $245,000 and dismissing the Frosts as parties. Following the trial, the court found in favor of the bank and dismissed the fourth amended complaint with prejudice.

FIRST APPEAL

D&Y appealed. In deNourie & Yost Homes v. Frost (Frost I) ,¹ we determined that the district court erred in granting summary judgment on D&Y's fraud and conspiracy claims. In the background section of the opinion, we stated that "[i]n April 2013, at the start of the bench trial, the Frosts confessed judgment for $245,000 on D&Y's breach of contract claim."² We held as follows:

• The court erred in granting summary judgment to the Frosts on D&Y's fraud claim because genuine issues of material fact existed whether the Frosts had intentionally made false or misleading representations that they could pay for D&Y's work.

• The court erred in granting summary judgment to the bank on D&Y's civil conspiracy claim because the complaint was sufficient to put the bank on notice that the claim rested on the bank's alleged conspiracy to commit fraud.

• The court erred in granting summary judgment to the Frosts on D&Y's civil conspiracy claim because its ruling rested on its incorrect judgment that D&Y's fraud claim failed as a matter of law and because it failed to consider that D&Y alleged two separate instances of fraudulent conduct.

• In the bench trial, the court did not err in finding that D&Y had failed to prove by clear and convincing evidence that the bank promised to finance D&Y's construction contract and to pay these funds directly to D&Y.³

With regard to the civil conspiracy claim against the bank, we "conclude[d] only that the court erred in granting summary judgment for its stated reason."⁴ We reversed the summary judgment orders and "remand[ed] the cause to the court to conduct further proceedings on D&Y's claims of fraud and civil conspiracy."⁵

PROCEEDINGS AFTER REMAND

After remand, D&Y filed a fifth amended complaint. which differed from the fourth amended complaint in several respects. The second cause of action, for "Fraud/Concealment/ Nondisclosure," incorporated by reference all allegations of the third cause of action and contained numerous additional factual allegations. The new complaint set forth five representations that D&Y claimed were false and alleged that D&Y finished construction after it received assurance of payment from Joe and the president of the bank. The fifth amended complaint alleged that the failure of the Frosts to pay the $245,000 owed for completion of the construction "destroyed D&Y's business which is no longer functioning." It claimed that D&Y "suffered damages consisting of the unpaid $245,000 plus approximately $2,400,000 for the destruction of D&Y's business or the total of $2,645,000." In contrast, the fourth amended complaint sought damages of $242,500, "plus damages in an undetermined amount for the destruction of D&Y's construction business."

D&Y also modified the third cause of action of the fifth amended complaint. D&Y alleged that there was a civil conspiracy between Joe and the bank to defraud D&Y, that the bank aided and abetted the Frosts' actions to defraud D&Y, and that Joe aided and abetted the acts of the bank to defraud D&Y. The third cause of action also included a number of new factual allegations, including specific acts and omissions demonstrating the alleged conspiracy.

The Frosts moved to dismiss the fifth amended complaint or, alternatively, moved for summary judgment. During a hearing on the motion, the bank stated that it would join in the Frosts' motion for summary judgment. The bank believed that if the Frosts were granted summary judgment, there would be no underlying action upon which the conspiracy action against the bank could be based. D&Y's counsel responded that the bank could support the Frosts' motion for summary judgment, but that it could not join it without filing and serving a motion. The district court agreed, stating, "I think he probably has to plead it, too, and have a separate hearing, if that's, in fact, what happens." No party adduced evidence during the hearing, but the Frosts requested that the court take judicial notice of the court's file. After the hearing, the bank filed an answer to the fifth amended complaint.

On November 25, 2015, the district court entered an order on the Frosts' alternative motions. First, the court denied the motion to dismiss, noting that the fifth amended complaint was filed before the deadline contained in the scheduling order. With regard to the motion for summary judgment, the court determined that the fraud claim was barred by the election of remedies. The court explained:

In its Fifth Amended Complaint, D&Y claims that the Frosts breached the agreement or, in the alternative, they committed fraud in inducing [D&Y] to enter into and/or continue work under the contract. The Court finds that either a contract exists and is enforceable, or there was fraud and the contract is void. Here, D&Y chose to take a judgment on the breach of contract claim. In doing so. D&Y elected breach of contract as a remedy which now forecloses D&Y from proceeding on any fraud claims.

The breach of contract claim is predicated on the existence of the contract. The fraud claim is based on allegations that D&Y would not have entered into the cont[r]act but for the alleged fraud and therefore the contract is void. Essentially, the damages D&Y sought (and obtained a judgment for) with respect to its breach of contract claim are to put [D&Y] in the position had the contract been fulfilled as agreed. Conversely, the damages D&Y seeks with respect to its fraud claim are to put D&Y in the position had the contract never occurred. It is clear that these remedies may not co-exist.

The district court also found that the doctrine of judicial estoppel "prevented" D&Y's fraud claim. The court stated that because D&Y had already reduced its breach of contract claim to judgment which was premised on the existence of a valid contract, judicial estoppel barred D&Y from now proceeding on a fraud claim based on a theory that the contract was not valid. The court therefore granted the Frosts' motion for summary judgment with respect to D&Y's fraud claim.

The district court also granted the Frosts' motion for summary judgment as to the civil conspiracy claim. The court stated:

[A]ny claims for fraudulent misrepresentations or concealment ... would be premised on the lack of a contract. Once again, the damages D&Y sought (and obtained a judgment for) with respect to its breach of

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