Casper Lodging, LLC v. Akers

• Decision Date: 28 October 2015
• Docket Number: No. 27074.,27074.
• Citation: 871 N.W.2d 477
• Parties: CASPER LODGING, LLC, Plaintiff and Appellee, v. Robert W. AKERS, Defendant, Third–Party Plaintiff and Appellant, v. Zakco Commercial Consultants, Inc., Abel Delgado, Donald E. Delzer, Dusty Gray, Kyle Hagen, Paul Lande, Jr., James C. Hoyt, Ken Preisler, Sandra Preisler, Joa Sasser, Dean Shoell, Angie Shoell, Binswanger Enterprises, LLC, McCall Pools, Inc., Moore Insulation, Inc. And Sheet Metal Specialties, Inc., Third–Party Defendants.
• Court: South Dakota Supreme Court

871 N.W.2d 477

CASPER LODGING, LLC, Plaintiff and Appellee,

v.Robert W. AKERS, Defendant, Third–Party Plaintiff and Appellant,

v.Zakco Commercial Consultants, Inc., Abel Delgado, Donald E. Delzer, Dusty Gray, Kyle Hagen, Paul Lande, Jr., James C. Hoyt, Ken Preisler, Sandra Preisler, Joa Sasser, Dean Shoell, Angie Shoell, Binswanger Enterprises, LLC, McCall Pools, Inc., Moore Insulation, Inc. And Sheet Metal Specialties, Inc., Third–Party Defendants.

No. 27074.

Supreme Court of South Dakota.

Argued on March 24, 2015.

Decided Oct. 28, 2015.

Gregory J. Erlandson, Sarah E. Baron, Houy Terry L. Hofer of Bangs, McCullen, Butler, Foye & Simmons, LLP Rapid City, South Dakota, Attorneys for plaintiff and appellee.

Mitchell PetersonAnthony M. Hohn of Davenport, Evans, Hurwitz & Smith, LLP Sioux Falls, South Dakota, Attorneys for defendant, third-party plaintiff and appellant.

KERN, Justice.

[¶ 1.] In this breach of contract case, the jury found in favor of Casper Lodging, LLC, concluding that Robert Akers failed to deliver to James Koehler a Holiday Inn Express in compliance with the parties' agreements. The jury awarded Casper Lodging $1,019,468.74. Prior to the verdict, the parties had stipulated that the circuit court would determine the date on which prejudgment interest would begin to accrue if there was a plaintiff's verdict. Upon receipt of the verdict, the court declared that prejudgment interest accrued, as a matter of law, from the date of the delivery of the completed Hotel and awarded plaintiff $997,682.83 in prejudgment interest. The court further awarded plaintiff post-judgment interest on the combined sum of the jury verdict and the prejudgment interest calculation. In multiple post-trial motions, Akers asserted that the circuit court made erroneous evidentiary rulings and failed to correctly instruct the jury. Akers claimed that the errors warranted reversal of the jury's verdict and a new trial. The court denied Akers's motions and Akers appeals. We reverse the circuit court's calculation of prejudgment interest and remand for the court to make a factual determination as to the date the loss on which prejudgment interest shall begin to accrue. We affirm on all remaining issues.

BACKGROUND

[¶ 2.] On October 15, 2003, Robert Akers agreed to sell to James Koehler a "turn key Eighty–Four (84) unit Holiday Inn Express" in Casper, Wyoming. The purchase price was set at $4,850,400. The hotel was not yet built; therefore, the parties executed a contract entitled "Improvement Purchase Agreement" (Agreement). The Agreement "set forth the terms and conditions under which [Akers] agree[d] to sell to [Koehler] the improvements [Akers] is constructing [.]" In particular, Akers was to build the improvements "pursuant to the plans and specifications prepared by Associated Architects, Ltd .... and the improvements" were to be "constructed by Zakco Commercial Consultants, Inc.," the general contractor.

[¶ 3.] The Agreement contained eight conditions precedent, "any of which may be waived by the buyer at any time[.]" One condition provided that Akers "must complete the construction of the improvements in a manner acceptable to [Koehler] in [Koehler's] reasonably exercised judgment." Another condition required Akers to "complete the construction of the improvements in compliance with all city, county, state, and federal government requirements; government approvals, if any, shall be provided to [Koehler] prior to closing." Koehler was required, "[o]n a date prior to closing," to obtain "the approval from the Holiday Inn Express system that the Hotel complies with all systems requirements and can be opened for business."

[¶ 4.] The Agreement identified that Akers and Koehler "have been negotiating this agreement for at least six months." The estimated completion date was set at the "end of 2003 of [sic] the beginning of 2004." Koehler had a right to monitor the construction of the Hotel, but could "not make changes to any of [Akers's] contracts unless the terms and conditions of this agreement [were] complied with." Akers represented to Koehler that "he will transfer all warranties that are transferable by [him] to [Koehler] at closing[.]"

[¶ 5.] On January 16, 2004, Akers and Koehler executed an Addendum to the Agreement. The Addendum accelerated the purchase date to facilitate Koehler's involvement in a 1031 tax-free exchange, with which Akers had previously agreed to cooperate. The Addendum acknowledged that construction of the Hotel "will not be completed in January, 2004, and it is not known when the [Hotel] will be completed," and Koehler "must close the transaction, before the completion of the Improvements[.]" The parties incorporated the Addendum into the Agreement and provided that Akers "shall have a continuing obligation to construct and finish the Improvements in accordance with all governmental requirements and the standards and specifications of the Holiday Inn Express system."

[¶ 6.] On February 5, 2004, Akers and Koehler closed on the sale and, on March 11, 2004, Koehler opened the Hotel. Koehler assigned his rights under the agreements to Casper Lodging, LLC, and Casper Lodging entered into a management agreement with The Koehler Organization (TKO) to staff, operate, and maintain the Hotel. Almost immediately after opening the Hotel, guests began complaining about the noise level from accompanying rooms, and Casper noticed issues with sound proofing. Koehler claimed that he informed Akers of the sound issue, to no avail. Ultimately, TKO hired Ernie Cuthbertson to facilitate the repair of the sound issue, which involved taking off sheetrock throughout the rooms and ceilings and installing soundboard. Casper also claimed that within the first six months it began to notice problems with water penetrating the Hotel's exterior. Casper addressed the problems in-house by replacing moist sheetrock, repainting walls, and applying caulk to some windows.

[¶ 7.] Although the sound issue was remedied, Casper claimed that problems persisted with the poolroom and with water penetration in the guest rooms. In 2007, TKO hired John Farr of Wiss, Janney, Elstner Associates, Inc. to inspect the poolroom and issue a report. Farr issued his report in late 2007. No formal steps were taken by Casper as a result of Farr's report, although Koehler testified that he was in constant contact with Akers about the problems. Casper continued to address the problems in-house by using its maintenance staff to make repairs. Casper also hired certain outside professionals to assist.

[¶ 8.] In 2009, Koehler contacted Wendell Potratz of Pro Group to renovate the Hotel's lighting and color in order to make the Hotel match the current Holiday Inn Express aesthetics. Casper also directed Potratz to address the moisture issues in the poolroom. Potratz was aware that Farr issued a report in 2007 concerning the poolroom. Potratz enlisted the help of Farr to assess the current state of the poolroom. Potratz's original contract covered renovating the Hotel and repairing the issues in the poolroom. However, Potratz amended that contract after the project started because he and his team noticed additional concerns throughout the Hotel. Ultimately, Potratz's contract price for the upgrade and repairs was $1,133,913.30, of which he related $802,383 to problems with the building's original construction. The repairs, renovations, and upgrades were accomplished between 2009 and 2010.

[¶ 9.] In October 2009, Casper brought suit against Akers for breach of contract. Casper alleged that Akers failed to provide an 84–unit turn-key Holiday Inn Express that met all city, county, state, and federal government requirements. Casper further claimed that Akers failed to build the Hotel in compliance with the controlling plans and specifications. Akers answered the complaint and asserted the affirmative defenses of failure to mitigate damages and waiver. After extensive discovery between the parties, Akers moved the circuit court to amend his answer to assert a third-party complaint against multiple subcontractors. The circuit court granted the motion over Casper's objection, and Akers named fifteen additional parties. The parties stipulated to a trial date of August 2012, which was continued to February 2013, and continued again to December 2013, constituting a delay of sixteen months.

[¶ 10.] On July 23, 2013, five months prior to trial, Akers again moved the circuit court to amend his third-party complaint to add a claim against TKO and asked that TKO be joined as an indispensable party under SDCL 15–6–19(a). The court denied Akers's motions. Ultimately, Akers settled his claims against certain third-party contractors and his claim against the general contractor was bifurcated.

[¶ 11.] A ten-day jury trial on Casper's claim against Akers was held in December 2013. Koehler and Akers testified about the Agreement and Addendum. Koehler described the extensive construction defects in the building and what actions he took to remedy the problems. Koehler also testified about his efforts to exercise any alleged warranty rights. James Hopkins, the maintenance person employed by the Hotel, testified about the actions he and Casper took to address the poolroom problems. Tom Pogroszewski, the Hotel supervisor, reiterated the measures Hopkins and Casper took to remedy the problems with the Hotel. Doug Vogt, the general manager for TKO, testified that TKO hired Ernie Cuthbertson to repair the sound issues, at a cost between $200,000 and $250,000. Vogt also testified that, although Farr was hired in 2007 to evaluate the poolroom problems, TKO and Casper did not act on that report.

[¶ 12.] Both parties presented expert testimony about the condition of the Hotel on the date Koehler took possession, identifying the problems that occurred and the cause of the defects. Dave Stafford, an architect and expert for Casper, testified about the plans and specifications governing the construction of the...