Cobb v. Gammon

• Decision Date: 14 October 2016
• Docket Number: 32,936,32,945 & 32,953 (Consolidated)
• Citation: 389 P.3d 1058
• Parties: Gary and Kimberly COBB, Plaintiffs–Appellees, and Clarence G. Simmons and Susan Begy Simmons, Third–Party Defendants–Appellees, v. Joseph GAMMON and Linda Gammon, Defendants–Appellants, and FFFP, LLC Third–Party Defendants–Appellants.
• Court: Court of Appeals of New Mexico

389 P.3d 1058

Gary and Kimberly COBB, Plaintiffs–Appellees,

and

Clarence G. Simmons and Susan Begy Simmons, Third–Party Defendants–Appellees,

v.Joseph GAMMON and Linda Gammon, Defendants–Appellants,andFFFP, LLC Third–Party Defendants–Appellants.

32,936

32,945 & 32,953 (Consolidated)

Court of Appeals of New Mexico.

Filing Date: October 14, 2016

Wray & Girard, PC, Katherine Wray, Albuquerque, NM Sanders & Westbrook, PC, Maureen A. Sanders, Albuquerque, NM for Appellees Simmons.

The Hemphill Firm, P.C., Linda G. Hemphill, Santa Fe, NM Paul W. Grace LLC, Paul W. Grace, Santa Fe, NM for Appellants Gammon.

Dixon, Scholl & Bailey, P.A., Gerald G. Dixon, Lisa Joynes Carrillo, Albuquerque, NM for Appellants FFFP, LLC and French & French Fine Properties, Inc.

OPINION

KENNEDY, Judge.

{1} Joseph and Linda Gammon, builders in search of a property to split and develop, purchased a piece of property with the help of their realtor, French & French Fine Properties, Inc. (FFFP). Neither the Gammons nor FFFP took notice of a covenant creating a minimum lot size for that property, and the Gammons created two impermissibly small lots from the property they purchased. The neighboring property owners sued the Gammons and FFFP seeking to enforce the covenant. Meanwhile, Clarence and Susan Simmons (Simmons) purchased land adjacent to the Gammons' property. FFFP filed a third-party action against the neighboring property owners, including the Simmons, seeking to bind them to the outcome of the case involving the enforceability of the covenant. The Simmons, unaware of the Gammons covenant violation during their purchase of the property and relying on FFFP's representations as to the existence of an enforceable covenant, then filed suit against FFFP for negligent misrepresentation. The district court ruled against the Gammons in the first case dealing with enforceability, and against FFFP with regard to the negligent misrepresentation claims.

{2} Only the issues presented in the Simmons' case against FFFP remain on appeal. FFFP asserts that the Simmons did not prove that FFFP made misrepresentations during the sale to the Simmons and that the Simmons also did not prove the justifiable reliance necessary for their negligent misrepresentation claim. FFFP appeals the district court's award of compensatory damages to the Simmons in the form of disgorgement of commission, attorney's fees, pecuniary loss, and transaction costs. We affirm the award of compensatory damages for the pecuniary loss. We remand the award of disgorgement of commission and transaction costs so that the district court may recalculate those damages as set forth in this opinion. We also remand the award of attorney's fees so that the district court may determine which fees were incurred while defending against FFFP's suit, and which were incurred while affirmatively pursuing the negligent misrepresentation claims. The Simmons are entitled only to those attorney's fees incurred in defending against the suit.

I. FACTUAL BACKGROUND

{3} In 1980, HMBL Venture (HMBL) owned 116 acres of property (HMBL Property) and split the property into four tracts (Tracts 1, 2, 3, and 4), imposing an identical restrictive covenant upon each tract when it was sold. The restrictive covenant attached to each of the four tracts that made up the HMBL Property, and the lots resulting from subdivision of those tracts included seven provisions, two of which are relevant to this appeal. The first reads, "[t]his land shall not be divided into parcels of less than five acres." The second provides, "[t]he covenants and restrictions shall run with and bind the land until the year 2020. They may be enforced by any person who has title to any of the property which is subject to these same restrictive covenants." Each of the four tracts within the HMBL Property were subsequently divided and sold.

A. The Gammons' Purchase of Lot 4A2

{4} In 2002, the Gammons purchased five acres within Tract 4 of the HMBL Property (Lot 4A2). The Gammons were represented by a broker from FFFP.¹ The warranty deed conveying Lot 4A2 stipulated that the tract was "SUBJECT TO: Restrictions, reservations and easements of record." The restrictive covenant for Lot 4A2 was recorded in Book 530, page 343, of the records of the Santa Fe County Clerk. Prior to closing on Lot 4A2, the Gammons received information from their title insurance company that disclosed the existence of the restrictive covenant as well as where it was recorded. Neither the Gammons nor their FFFP broker reviewed the text of the covenant, despite receiving documents containing this information from the title insurance company.

{5} After purchasing Lot 4A2, the Gammons divided their five-acre parcel into two two-and-one-half acre lots and constructed a house on one of the lots. The Gammons sold that house and lot to Lawrence Goldstein in October 2003.² While constructing a house on the second two-and-one-half acre lot, the Gammons discovered they were in violation of the covenant burdening Lot 4A2. FFFP assured the Gammons it would fix the problem with the restrictive covenant.

{6} FFFP discussed potential remedies to the violation with both the Gammons and Goldstein. These remedies included "condominiumizing" both of the violating lots within Lot 4A2, acquiring acreage from surrounding lots to bring each lot into compliance with the minimum size requirement, and obtaining a waiver of or amendment to the existing covenant from all HMBL Property owners. Ultimately, FFFP pursued plans to get all landowners within the HMBL Property to waive objections to or consent to amending the restrictive covenant that burdened the tracts within the HMBL Property.

{7} In August 2005, FFFP hand-delivered letters to all HMBL Property owners requesting signatures to "resolve an expiring deed restriction." The letter was accompanied by a copy of the relevant deed and restrictive covenant, a diagram specifying which tracts had acquiesced to the waiver and amendment as well as which tracts within the HMBL Property were in violation of the covenant, and copies of the proposed waiver and amendment. Because of FFFP's circulating the letter, Gary and Kimberly Cobb (the Cobbs) learned of the Gammons' covenant violation, as well as three other restrictive covenant violations within the HMBL Property. The Cobbs refused to sign the waiver and amendment. FFFP's attempts to get the waiver and amendment signed by other neighboring property owners were also unsuccessful.

B. Simmons and the Trust Property

{8} Lots 2A, 3B, 3C, 3D, 4B, 4C, and 4D within the HMBL Property belonged to a trust (Trust Property) that Cowden Henry and Thomas Craddock managed as trustees.³ Ray Rush and Tim Van Camp, brokers for FFFP, listed the Trust Property for sale. The Simmons were searching for property in the Santa Fe area that was protected from dense development, had unobstructed views, was in a quiet setting, and had low potential for adjacent development. The Simmons were working with Neil Lyon, another FFFP broker, during their search. Lyon and Van Camp showed the trust property to the Simmons, and during the Simmons' many subsequent visits to the property, the FFFP brokers told them that some of the neighbors were interested in amending the existing covenants. On May 2, 2005, unbeknownst to the Simmons who were contemplating purchasing the Trust Property, Van Camp obtained Henry's and Craddock's signatures, as trustees for the Trust Property, on the waiver and amendment to the covenant that FFFP was circulating among the HMBL Property owners. The Simmons signed a purchase agreement on May 13, 2005, and closed on the property on June 15, 2005. Both houses on the Gammons' Lot 4A2, which was adjacent to Tract 4C of the purchased Trust Property, existed when Simmons purchased the Trust Property. In late 2008 and early 2009, FFFP approached the Simmons, requesting that they either turn over a portion of the trust property to cure Lot 4A2's violation, or sign the waiver and amendment. The Simmons refused to consent to either proposed solution. The Simmons were neither offered the reasonable value of the property in exchange for the acreage, nor provided with a copy of the waiver or amendment that the sellers had signed.

II. PROCEDURAL HISTORY

{9} After finding out about the Gammons' covenant violation through FFFP's attempts to obtain signed a waiver and amendments, the Cobbs joined with other HMBL lot owners (collectively, the Cobb Plaintiffs) and filed suit in January 2006 against the Gammons and Goldstein.⁴ In the complaint, the Cobb Plaintiffs sought enforcement of the covenant through declaratory judgment and an injunction, and they requested punitive damages. The Cobb Plaintiffs later amended their complaint, adding a claim against FFFP and the Gammons for conspiracy to breach the covenant, a claim against FFFP for aiding and abetting, and requesting punitive damages against FFFP.

{10} In 2009, the Gammons, Goldstein, and FFFP filed a third-party complaint against all others who owned lots within the HMBL Property, including the Simmons, seeking judgment binding the property owners to any judgment rendered in FFFP's case against the Cobb Plaintiffs. The Simmons filed a counterclaim against the Gammons, Goldstein, and FFFP. In that counterclaim, the Simmons sought a declaratory judgment regarding the covenant violation and an injunction requiring compliance with the restrictive covenants; they also brought claims of negligent misrepresentation and constructive fraud against FFFP.

{11} The Cobb Plaintiffs' claims, the Gammons and FFFP's third-party complaint, and the Simmons' counterclaim were all tried together in a district court trial that lasted eleven days. After trial, the district court issued extensive findings of fact and conclusions of law. The district court's final judgment, entered on April 16, 2013, awarded the Cobb Plaintiffs unjust enrichment damages and punitive damages against the Gammons and FFFP.⁵ It also awarded the...