Fayne v. Vincent

• Decision Date: 11 December 2009
• Docket Number: No. E2007-00642-SC-R11-CV.,E2007-00642-SC-R11-CV.
• Citation: 301 S.W.3d 162
• Parties: Gwen FAYNE et al. v. Teresa VINCENT et al.
• Court: Tennessee Supreme Court

301 S.W.3d 162

Gwen FAYNE et al. v. Teresa VINCENT et al.

No. E2007-00642-SC-R11-CV.

Supreme Court of Tennessee, at Knoxville.

May 5, 2009 Session.

December 11, 2009.

Travis D. Henry and J. Michael Sharp, Cleveland, Tennessee, for the appellants, Teresa Vincent and David Vincent.

Michael A. Anderson, Chattanooga, Tennessee, for the appellees, Gwen Fayne and Alfred Fayne.

OPINION

WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which JANICE M. HOLDER, C.J., CORNELIA A. CLARK, GARY R. WADE, and SHARON G. LEE, JJ., joined.

This appeal involves the application of the Tennessee Consumer Protection Act to real estate professionals engaged in the sale of their personal residence. When problems with the septic system occurred soon after the sale, the purchasers filed suit in the Chancery Court for Bradley County seeking rescission and damages. The trial court, sitting without a jury, determined that the "[residential property] disclosure statement was violated" but that the sellers had not acted intentionally, maliciously, or fraudulently. The trial court ordered that the sales contract be rescinded and directed the sellers to repurchase the property from the purchasers for the original purchase price of $104,500. The purchasers appealed, and the Court of Appeals remanded the case to award additional damages to return the purchasers to their position prior to the sale and to pay for their legal expenses. Fayne v. Vincent (Fayne I), No. E2003-01966-COA-R3-CV, 2004 WL 1749189 (Tenn.Ct.App. Aug.5, 2004) (No Tenn. R.App. P. 11 application filed). On remand, the trial court found that the sellers had violated the Tennessee Consumer Protection Act and that the sellers should pay the buyers $120,483.93, as well as $37,483.93 in attorney's fees. The sellers appealed, and the Court of Appeals affirmed the judgment. Fayne v. Vincent (Fayne II), No. E2007-00642-COA-R3-CV, 2008 WL 657849 (Tenn.Ct.App. Mar.12, 2008). We granted the sellers' application for permission to appeal to address the application of the Tennessee Consumer Protection Act to real estate professionals engaged in the sale of their personal residence. We have determined (1) that the Tennessee Consumer Protection Act applies to the sellers under the facts of this case, and (2) that the sellers violated the Act by failing to provide the purchasers with all the information they possessed regarding the septic system. Accordingly, we affirm the judgment of the Court of Appeals.

I.

David and Teresa Vincent have careers in the development, construction, and sale of residential property. Mr. Vincent is a builder and developer, and Ms. Vincent is a realtor. Mr. Vincent acted as the developer of the Quail Run subdivision in Bradley County, and he also built one or more of the homes in the subdivision.¹

In August 1994, as part of his construction of a house on Lot 7 of the Quail Run subdivision, Mr. Vincent obtained a permit to construct a septic system for the house. The permit required that the house be sited 90 to 100 feet from the road in order to accommodate the septic system. Notwithstanding this requirement, Mr. Vincent constructed the house with a 60-foot setback from the road. When the completed septic system was inspected in June 1996, the inspector noted that the house was sited too close to the street and that, if septic problems occurred, the property owners would be required "to install [a] pump to pump to back of lot."

The Vincents moved into the house on Lot 7 after it was completed. Because they planned to sell the house, they completed and signed a Tennessee Residential Property Condition Disclosure Statement on October 1, 1996, stating that they were unaware of any defects or malfunctions in the septic system. Ms. Vincent testified that she signed this statement in her dual capacity as owner of the property and as the realtor for the property.

In December 1996, the Vincents noticed standing water in their yard and staining on the sidewalk in front of their house. Because they suspected a problem with the septic system, the Vincents excavated the system to inspect the lines. The inspection revealed that the lines were dry even though the surrounding soil was wet. The Vincents added some rock, reburied the lines, and pressure washed the sidewalk to remove the stains.

In January 1997, Gwen² and Alfred Fayne toured the Vincents' house. They executed a contract to purchase the house in June 1997. Prior to the closing, the Faynes obtained an inspection of the house, including the septic system. A dye test conducted by the inspector did not reveal any leaks in the septic system at that time. The Vincents did not inform the Faynes or their inspector about the problems with the sewer that they had experienced in December 1996 or about the conditional approval of the septic system in June 1996. The purchase of the house was completed on July 28, 1997.

After the Faynes moved into their new home, they began to notice odorous fluid seeping around the septic tank, especially after they used the washing machine or the bathtub. On February 25, 1998, the Faynes filed suit against the Vincents in the Chancery Court for Bradley County seeking to rescind the sale transaction and to recover compensatory and punitive damages. The Faynes' claims sounded in negligent misrepresentation, fraud, deceit, and violations of the Tennessee Consumer Protection Act, Tenn.Code Ann. § 47-18-101 to -130 (2001 & Supp.2009).³

The trial court conducted a two-day bench trial on December 11 and 17, 2002. At trial, evidence was introduced that a second dye test revealed no seepage, and a water test performed in May 2002 indicated no bacteria in the water. The court found that the "disclosure statement was violated." The court also found that Mr. Vincent was aware of the "problems or potential problems with the septic system" and "an unauthorized change in the utility." However, the trial court concluded that there was no proof that the Vincents' representations regarding the septic system were "intentional, malicious, or fraudulent" because they "may have thought that the problem was fixed."

The trial court rescinded the contract for the sale of the house because the Faynes "bought a house that they thought had a good [septic] system, and they thought that [the] house they bought also had room for a second system. That's what they bargained for. That is not what they received. ..."⁴ Accordingly, the trial court ordered the Vincents to repurchase the property for the original contract price of $104,500 and to pay the costs of the closing of this transaction. The trial court declined to award punitive damages or attorney's fees and declined to deduct the fair rental value of the property for the time the Faynes lived in the house from the repurchase price because no proof had been submitted on these issues.⁵

The Faynes appealed to the Court of Appeals, challenging, among other things, the trial court's refusal to award attorney's fees. The appellate court remanded the case to the trial court with directions to consider closing costs, mortgage interest, real estate taxes, prejudgment interest, fair rental value of the house, and other issues pertinent to restoring the Faynes to their pre-contract position. Fayne I, 2004 WL 1749189, at *5. The Court of Appeals also directed the trial court to state specifically on which of the Faynes' causes of action — violation of the Tennessee Consumer Protection Act or common-law misrepresentation — it had based its judgment. Fayne I, 2004 WL 1749189, at *5. No appeal was taken from this decision.

The trial court received the Court of Appeals' mandate on October 14, 2004. The next day, the Faynes requested that the issues remanded by the Court of Appeals be referred to a special master. On January 5, 2005, the trial court entered an agreed order appointing a special master and directing the master to hear evidence and file a report regarding the calculations necessary to place the parties in the positions they would have occupied absent the sale. The special master conducted a hearing on January 27, 2005, and filed an "order of special master" on March 10, 2005. The special master determined that the Vincents should be required to pay the Faynes $120,691.31. In addition, the special master determined that the Vincents had not violated the Tennessee Consumer Protection Act. He also declined to award the Faynes attorney's fees or prejudgment interest.

The Faynes objected to the special master's report and requested a hearing before the trial court. On August 25, 2005, the trial judge, who had presided over the case since it was filed in 1998, stepped aside and assigned the case to another judge. Following a hearing, the new judge filed a memorandum opinion on December 11, 2006. The trial court first determined that the special master did not have the authority to decide whether the Vincents had violated the Tennessee Consumer Protection Act. Based on the finding made by the original trial judge in 2002, the trial court concluded that the Vincents were subject to the Tennessee Consumer Protection Act because they were "a developer and realtor, respectively" and determined that the original trial judge's findings provided a basis for concluding that they had violated the Tennessee Consumer Protection Act.

Accordingly, the trial court affirmed the special master's award of $120,691.31. In addition, the trial court awarded the Faynes prejudgment interest and $37,483.93 in attorney's fees. On February 8, 2007, the trial court denied the Vincents' motion to alter or amend the judgment. The Court of Appeals affirmed the trial court's December 11, 2006 judgment. Fayne II, 2008 WL 657849, at *7. The Vincents thereafter filed a Tenn. R.App. P. 11 application for permission to appeal, raising two issues: (1) whether the Tennessee Consumer Protection Act applied to them because the transaction involved the sale of their personal...