Louisburg Bldg. & Dev. Co. v. Albright

• Decision Date: 08 April 2011
• Docket Number: No. 102,511.,102,511.
• Court: Kansas Court of Appeals
• Parties: LOUISBURG BUILDING & DEVELOPMENT COMPANY, L.L.C., Carson Group, Inc., and Damon A. Williams, Appellees/Cross-appellants,v.Troy ALBRIGHT and Kris Albright, Appellants/Cross-appellees.

45 Kan.App.2d 618

252 P.3d 597

LOUISBURG BUILDING & DEVELOPMENT COMPANY, L.L.C., Carson Group, Inc., and Damon A. Williams, Appellees/Cross-appellants,

v.Troy ALBRIGHT and Kris Albright, Appellants/Cross-appellees.

No. 102,511.

Court of Appeals of Kansas.

April 8, 2011.

[252 P.3d 601 , 45 Kan.App.2d 618]

Syllabus by the Court

1. As a general rule, legal theories not asserted at trial will not be considered on appeal. No exception to that rule can be applied here to allow the plaintiffs to assert an entirely new theory of liability on appeal.

2. Generally, the owners of a corporation are not personally liable for the corporation's debts. But the corporate entity may be disregarded under either of two theories: (1) when the corporation's owner has acted as the alter ego of the corporation, using the corporation merely as an instrumentality to conduct personal business, or (2) upon a general showing that the interests of justice require it. Under either theory, the decision to disregard a corporate entity should be exercised cautiously.

3. Even under the interests-of-justice theory for disregarding a corporate entity, there must be some showing that it would be inequitable or unjust to uphold the legal fiction of separate entities. Merely showing that some kind of injustice occurred is not sufficient.

4. The basic goal in awarding contract damages is to put the nonbreaching party in the position the party would have been in had the breach never occurred, without allowing that party a windfall.

5. Expectation damages for breach of contract are generally determined by taking the difference in value between the performance contracted for and the defective performance that was given. In a construction contract, where the breaching contractor leaves a project incomplete and the owner pays to have the project completed by someone else, awarding the owner the cost of completing construction is one way to protect the owner's expectation interest. But the owner must make reasonable efforts to avoid excessive costs in completing the construction. In addition, the court must also reduce the recovery by any cost avoided as a result of the breach.

6. In a cost-plus construction contract, where the contract does not contemplate a fixed price, the method of calculating damages—and thus returning the nonbreaching party to its expected position—should generally be based upon how many otherwise-avoidable expenses the nonbreaching party incurred as a result of the breach.

7. A party may commit an unconscionable act under the Kansas Consumer Protection Act, K.S.A. 50–627, in connection with a contract, but there must be some element of deceptive bargaining conduct present as well as unequal bargaining power to render the contract between the parties unconscionable.

8. Whether to award attorney fees to a successful plaintiff under the Kansas Consumer Protection Act is a discretionary call to be made by the district court.

9. The economic-loss doctrine originated in products-liability law, preventing purchasers from suing in tort where the damages claimed were purely economic—stemming from product-repair costs, product-replacement costs, inadequate product value, or lost products resulting from product defects. The doctrine has since expanded to serve as a dividing line between contract and the broader array of tort claims.

10. When the actual damages that could be recovered under a tort claim are the same as those that could be recovered for breach of contract, the economic-loss doctrine prevents a party to a contract from bringing the tort claim. This is so even when a party to a contract claims damages based on a tort claim that another party fraudulently induced the first party to enter into the contract so long as the actual damages sought on the tort claim are the same as would be available under the contract claim.

11. The traditional hallmarks of unconscionability under the Kansas Consumer Protection Act are deceptive conduct coupled with an imbalance of power between the parties. When a party is under a duty to disclose certain information, the omission of that information rises to the level of deception.

12. A successful plaintiff under the Kansas Consumer Protection Act may receive the civil penalties provided by the Kansas Consumer Protection Act in addition to actual damages recovered under other common-law causes of action.

Mark D. Murphy and Jeffrey M. Cook, of The Murphy Law Firm, L.L.C., of Overland Park, for appellants/cross-appellees.Mark V. Bodine, of Bennett, Bodine & Waters, P.A., of Shawnee, for appellee/cross-appellant Louisburg Building & Development Company, L.L.C.Gary A. Schafersman and James L. MowBray, of Wallace, Saunders, Austin, Brown & Enochs, Chtd., of Overland Park, for appellees Carson Group, Inc., and Damon Williams.Before MALONE, P.J., CAPLINGER and LEBEN, JJ.LEBEN, J.:

Louisburg Building & Development Company, L.L.C. (“Louisburg Building”) began building a home for Troy and Kris Albright that had several deficiencies. The district court found Louisburg Building liable to the Albrights based on breach of contract and violations of the Kansas Consumer Protection Act (KCPA). The court found that Louisburg Building failed to construct the Albrights' home in a workmanlike manner and that Louisburg Building committed KCPA violations by failing to keep the Albrights informed about exceeding the budget during construction. As a result of these violations, the district court awarded breach-of-contract damages and civil penalties under the KCPA, although the district court did not agree with the Albrights' damage calculation. The Albrights added two other parties to the lawsuit: Louisburg Building's owner, Damon Williams, and a subcontractor in which Williams had an ownership interest, Carson Group, Inc., d/b/a The Homeowner's Helper (“Carson Group”). The Albrights attempted to hold Williams and Carson Group liable for Louisburg Building's debts on the basis that Williams and Carson Group were the alter egos of Louisburg Building, but the district court disagreed. The Albrights also asserted fraud-in-the-inducement claims against Louisburg Building and Williams, but the district court dismissed those claims.

There are many issues on appeal, so we will provide a brief summary here before discussing each issue in detail. The Albrights argue six issues, but we find only one (listed third below) of merit: (1) we will not consider the Albrights' argument that Williams should have liability in his personal capacity under the KCPA because that theory of liability was not raised before the district court; (2) the district court was correct in finding that Williams was not the alter ego of Louisburg Building as the Albrights failed to show how Williams used Louisburg Building's corporate entity to perpetrate a fraud; (3) the district court erred in employing a measure of damages that did not properly calculate expectation damages; (4) the district court was correct in finding that Louisburg Building and Williams did not violate the KCPA by using Carson Group as a subcontractor since this use did not rise to the level of unconscionability because there was no deceptive element to the conduct; (5) the district court did not err in refusing to award attorney fees under the KCPA as the Albrights were unsuccessful on the majority of the KCPA claims they asserted; and (6) the district court did not err in dismissing the Albrights' fraud-in-the-inducement claims based on the economic-loss doctrine because the damages sought for this claim were purely economic and related solely to the subject matter of the parties' contract.

Louisburg Building argues two issues on cross-appeal, but neither has merit: (1) the district court did not err in finding that Louisburg Building's failure to notify the Albrights of budget problems was unconscionable as this conduct involved both deception and an imbalance of power between the parties; and (2) the district court did not err in awarding the Albrights both breach-of-contract damages and civil penalties under the KCPA because the KCPA's election-of-remedies provision only requires a choice between civil penalties and damages under the KCPA, not damages awarded generally under other legal claims.

Factual and Procedural Background

The Albrights purchased land in Louisburg, Kansas, from Damon Williams around 2002. The Albrights wanted to build a new home on the land, and Williams, as operating manager and 50% owner of Louisburg Building, offered to build it for them. Before buying the land, the Albrights put considerable thought into the home they wanted to build, accumulating pictures and other materials that exemplified the “French Tuscany” style they desired. The Albrights showed these pictures to Williams during the negotiation process, discussing specific details as to the quality of home they wanted, and Williams assured the Albrights that he could deliver.

Williams referred the Albrights to George Holton, an architect whom Williams had worked with several times in the past. Based on the materials provided by the Albrights, Holton designed a set of plans, and based on those plans, Williams prepared a construction bid for roughly $650,000. That price was too high for the Albrights' $550,000 budget, so they directed Holton to reduce the square footage of the plans but not to deviate from the high-quality finish. The Albrights provided the second plans to Williams, reiterating that the finish was to remain high quality, and Williams came back with a proposal to build the house for $545,668. The proposal included the price estimates for various categories of work, but it stated, “If additional work is required over and above the estimated, quoted, bid or proposed work, an EXTRA charge will be assessed.”

Louisburg Building began construction on the Albrights' home in November 2003, several months before the execution of a “cost plus fixed fee” construction...