Marx Real Estate Invs., LLC v. Coloso

• Decision Date: 15 June 2011
• Docket Number: No. CA 09–1363.,CA 09–1363.
• Citation: 2011 Ark. App. 426,384 S.W.3d 595
• Parties: MARX REAL ESTATE INVESTMENTS, LLC; Margie Marx; and Allan Marx, Appellants/Cross–Appellees v. Dr. Victor COLOSO and Regina Coloso, Appellees/Cross–Appellants Envision Real Estate Group, LLC, Cross–Appellee.
• Court: Arkansas Court of Appeals

2011 Ark. App. 426

384 S.W.3d 595

MARX REAL ESTATE INVESTMENTS, LLC; Margie Marx; and Allan Marx, Appellants/Cross–Appellees

v. Dr. Victor COLOSO and Regina Coloso, Appellees/Cross–AppellantsEnvision Real Estate Group, LLC, Cross–Appellee.

No. CA 09–1363.

Court of Appeals of Arkansas.

June 15, 2011.

Matthew Richard House, Little Rock, Jason Trevor Browning and Emily Milholen Reynolds, Fort Smith, for appellants.

Glenn Eugene Kelley, Rogers, for appellees.

LARRY D. VAUGHT, Chief Judge.

[Ark. App. 1]This appeal involves questions of the election of remedies and the right to a jury trial. After discharging the jury, the Sebastian County Circuit Court found that it could not rescind the real estate contract between appellants Marx Real Estate Investments, LLC (MREI), Margie Marx, and Allan Marx (collectively with MREI, the Marx defendants), and appellees Dr. Victor Coloso and Regina Coloso, but it awarded the Colosos approximately $56,000 in damages and approximately $51,000 in attorney's fees. The Marx defendants appeal and the Colosos cross-appeal, raising issues concerning the propriety of the circuit court's handling of the Colosos' election of their remedy, the damages awarded to the Colosos, and the award [Ark. App. 2]of attorney's fees to the Colosos. The Colosos also argue that the circuit court erred in its dismissal of separate cross-appellee Envision Real Estate Group, LLC, the agent for the Marx defendants. We affirm on direct appeal, affirm on cross-appeal, and deny Envision's motion to dismiss the Colosos' cross-appeal against it.

Background

On July 30, 2007, MREI purchased a home from Dr. Stephen Nelson for $452,000 and was provided with a real estate disclosure (the Nelson disclosure) regarding the property. The Nelson disclosure stated that there had been water leakage resulting from problems with the veranda tiles, window sills, and insufficient guttering. The statement also said that there had been mildew in the pool room, but that it was unclear whether there was mold present. MREI began remodeling and making numerous repairs to the property in anticipation of using it as the Marxes' personal residence.

MREI listed the house for sale for $750,000 in September 2007 while remodeling was still ongoing. The listing stated that the home was currently being repaired and that MREI would give a $50,000 remodeling allowance. The Colosos' real estate agent, Sharla Lau, advised them that the property was for sale and made an appointment for them to look at it. The Colosos made four or five visits to the property.

Due to the additional repairs that needed to be performed, the Colosos negotiated a price of $625,000 on October 12, 2007. In connection with the transaction, MREI prepared a real estate disclosure statement regarding the property. MREI later prepared a disclosure [Ark. App. 3]form that answered certain questions that the first disclosure statement had left blank. The additional answers stated

We were told by the previous owners, there was water coming in from the gutters and/or roof. The previous owners fixed the roof and we fixed/cleaned the gutters. The gutters were cleaned/repaired. Since our ownership there have [sic] been no evidence of any leakage. Mold was on a small section of the living room wall, we bleached it, and put a primer, then we repainted.

The Colosos engaged a property inspector, Lowell Coomer, who provided a report dated October 17, 2007. The summary of Coomer's report suggested that the EIFS siding ¹ was installed below grade; that the down spouts were not connected, directing water to the foundation; that there were several cracks in the siding, some of which had been repaired; that there were high readings of water detected in the vicinity of some of the cracks; and that there were roof-to-wall flashings missing, which protect the siding from water intrusion. Coomer suggested further evaluation and repair by a certified EIFS contractor.

Also at the same time, the Colosos and Lau met with Donnie Mitchum of Cumbie Mitchum Plastering to discuss repairs to the EIFS and the condition of the EIFS. Cumbie Mitchum submitted an estimate of approximately $8000 to correct the problems with the EIFS.

The parties closed on the transaction on November 13, 2007. On December 31, 2007, the Colosos obtained a copy of the disclosure statement prepared by Dr. Nelson. The Colosos [Ark. App. 4]later obtained an estimate that the cost of repairing the veranda tiles was $17,500.

The Colosos received a report dated October 12, 2008, after suit had been filed, that disclosed the existence of unacceptably high levels of mold. Among other things, the report recommended an inspection by a certified EIFS contractor, including the testing of sheet rock, and the elimination of all moisture sources. An estimate of the cost of correcting the mold infestation was obtained. The total estimate was $107,623.05.

On January 3, 2008, the Colosos filed suit against the Marx defendants and Envision, seeking equitable rescission of the transaction, or alternatively money damages. The complaint, later twice amended, set forth causes of action for breach of contract, fraud, fraud in the inducement, constructive fraud, negligence, and violation of the Arkansas Deceptive Trade Practices Act. The complaint also sought to pierce the corporate veil so as to hold Margie and Allan Marx personally responsible for MREI's actions, and punitive damages.

The Marx defendants made a jury-trial demand, filed an answer, and asserted several affirmative defenses, including comparative fault, failure to mitigate, estoppel, election of inconsistent remedies, waiver of rescission, and failure to state a claim. MREI also filed a counterclaim alleging that it was overcharged for real estate taxes and that the Colosos actually owed MREI approximately $2100.

Proceedings at Trial

A jury was empaneled to hear the case. At the close of the Colosos' case, the circuit court granted Envision a directed verdict on the claims for fraud, fraud in the inducement, [Ark. App. 5]constructive fraud, and violation of the Arkansas Deceptive Trade Practices Act. The court found that any misstatements contained in the disclosure prepared by the Marx defendants were not Envision's misrepresentations. The court denied the motions as to negligence against Envision and on all claims against the Marx defendants. The court required the Colosos to elect between their remedies of rescission or contract damages. The Colosos then elected the remedy of rescission, over objection by the Marx defendants that doing so deprived them of their right to a jury trial. The jury was dismissed and trial continued to the bench.

After considering the parties' posttrial briefs, the circuit court filed its opinion and judgment on May 26, 2009. The court first addressed the Colosos' claims against Envision. The court noted that it had found no authority for the proposition that rescission may be based upon negligence. The court also found that Envision was not a party to the contract and did not prepare the disclosures at issue; instead, it was simply the agent for MREI and the Marxes. The court also found that the evidence did not support a finding that Envision was negligent.

The court then turned to the liability of the Marx defendants. The court considered the discrepancies between the disclosure provided by Dr. Nelson with that provided by MREI and the evidence and concluded that the Marx defendants had made fraudulent misrepresentations. After noting the difficulty in determining the amount of mold attributable to the conduct of the Marx defendants with that caused by the Colosos' failure to follow the recommendations of experts in remediation of the mold problem, the court found that it was [Ark. App. 6]impossible for the property to be returned to the Marx defendants in substantially the same condition as it was in when it was sold. The court accordingly found that rescission was not available as a remedy and proceeded to address the Colosos' argument that they should be awarded damages in the event that rescission was unavailable. The court noted the argument by the Marx defendants that the Colosos had elected rescission as their remedy, but held that a court of equity could fashion any remedy justified by the proof. The court concluded that the Colosos were entitled to recover some, but not all, of the costs of correcting the mold infestation because of their failure to take curative actions at little or no cost. The court awarded the cost of repairs to the veranda, $17,500, and one-third of the cost of the mold remediation, $39,074.35, for a total judgment of $56,574.35. The court further found that, by proceeding in equity, the Colosos had waived their right to recover punitive damages against the Marx defendants. The court pierced MREI's corporate veil to hold Margie and Allan Marx personally liable. The court also found in favor of the Colosos on the counterclaim filed by MREI.

On June 25, 2009, the Marx defendants filed their notice of appeal. The Colosos filed their notice of cross-appeal on July 2, 2009.

The Colosos filed a motion seeking attorney's fees of $77,380 and costs of $11,064.68. The court found that the Colosos were entitled to fees pursuant to the real estate contract between the parties. After apportioning one-third of the time to the claims against Envision, the court awarded the Colosos attorney's fees of $51,612.46 and costs of $215. The Marx [Ark. App. 7]defendants amended their notice of appeal to appeal from the award of the attorney's fees.

Standard of Review

In bench trials, the standard of review on appeal is not whether there is substantial evidence to support the finding of the court, but whether the court's findings were clearly erroneous or clearly against the preponderance of the evidence. Ark. R. Civ. P. 52(a); Cochran v. Bentley, 369 Ark. 159, 251 S.W.3d 253 (2007). A finding is clearly erroneous when, although there is...