Mayer v. Sto Industries, Inc.

• Decision Date: 06 April 2006
• Docket Number: No. 76720-3.,76720-3.
• Citation: 132 P.3d 115,156 Wn.2d 677
• Court: Washington Supreme Court
• Parties: Kurtis R. and Pamela MAYER, Petitioners, v. STO INDUSTRIES, INC., a foreign corporation doing business in the State of Washington, Respondent, Marvin Windows, Inc., a foreign corporation doing business in the State of Washington; Northwest Tile, Inc., a Washington corporation; and McSweeney Steel Company, Inc., a Washington corporation, Defendants.

132 P.3d 115

156 Wn.2d 677

Kurtis R. and Pamela MAYER, Petitioners, v. STO INDUSTRIES, INC., a foreign corporation doing business in the State of Washington, Respondent Marvin Windows, Inc., a foreign corporation doing business in the State of Washington; Northwest Tile, Inc., a Washington corporation; and McSweeney Steel Company, Inc., a Washington corporation, Defendants.

No. 76720-3.

Supreme Court of Washington, En Banc.

Argued February 14, 2006.

Decided April 6, 2006.

James Benjamin Meade, Forsberg & Umlauf, Margaret Yvonne Archer, Bradley Alan Maxa, Gordon Thomas Honeywell, Tacoma, for Petitioner/Appellants.

Philip Albert Talmadge, Anne Elizabeth Melley, Talmadge Law Group PLLC, Tukwila, Kenneth F. Hobbs, Stafford Frey Cooper, Seattle, for Appellee/Respondents.

OWENS, J.

¶ 1 We are asked to resolve several issues involving the trial court's award of discovery sanctions, attorney fees, costs, and damages against the manufacturer of a defective, stucco-like product applied to the exterior of the plaintiffs' home. Remanding the matter, the Court of Appeals directed the trial court to eliminate a portion of the sanctions award and make additional findings on the record supporting the imposition of sanctions. The Court of Appeals also ordered the trial court to recalculate the attorney fees and costs assessed under the Consumer Protection Act (CPA), chapter 19.86 RCW. We reverse the Court of Appeals on the foregoing issues, but we affirm the conclusion of the trial court and Court of Appeals that the plaintiffs were entitled to damages not only for the physical repair of their home but also for the home's diminished value.

FACTS

¶ 2 Kurtis and Pamela Mayer began remodeling their waterfront vacation home in Dash Point in 1988. In April 1989, contractors applied to the exterior of the home the Exterior Insulation Finish System (EIFS), a synthetic stucco product manufactured by Sto Industries. In 1990, after the Mayers noticed water damage below the windows, the windows were recaulked. Four years later, the Mayers discovered dry rot around the window trim and in the substructure of the exterior walls. The Mayers sued Sto and others in April 1995. By early 1997, the Mayers had settled their claims with all defendants except Sto. The Mayers' claims against Sto under the CPA and the Washington product liability act (WPLA), chapter 7.72 RCW, were tried to a jury in June 1997 before Pierce County Superior Court Judge John A. McCarthy. The jury returned a defense verdict.¹

¶ 3 After the verdict, an attorney in North Carolina representing plaintiffs in EIFS litigation sent the Mayers a copy of a 1991 memorandum written by Sto's technical services manager, Thomas Remmele, in which Remmele admitted that the EIFS was inherently flawed. Because Remmele had testified to the contrary at the Mayers' trial, the Mayers filed a motion under CR 59, seeking a new trial based upon the newly discovered evidence. The trial court denied the motion, as well as the Mayers' subsequent motion for reconsideration, and the Mayers appealed.

¶ 4 In an unpublished decision, the Court of Appeals reversed the trial court's denial of the Mayers' motion for a new trial, concluding that "[a]dmission of the memorandum may have changed the result of the trial because it admits what the Mayers were forced to try to prove through other means — that the system has an inherent flaw." Mayer v. Sto Indus., Inc., noted at 97 Wash.App. 1029, 1999 WL 704714 at *7, 1999 Wash.App. LEXIS 1651, at *20. The Mayers then filed a motion in the trial court seeking discovery sanctions against Sto under CR 26(g) and this court's decision in Washington State Physicians Insurance Exchange & Ass'n v. Fisons Corp., 122 Wash.2d 299, 858 P.2d 1054 (1993). In an oral ruling, Judge McCarthy concluded "that Sto had committed a discovery abuse" but that the calculation of an appropriate remedy would have to await the outcome of a second trial. Clerk's Papers (CP) at 3475.

¶ 5 After the parties accepted Judge McCarthy's offer to recuse himself, the case was reassigned to Pierce County Superior Court Judge Rosanne Buckner and tried before a jury in April and May 2002. The Mayers used the Remmele memo, as well as dozens of other previously withheld documents, to support their claim that Sto was liable under the CPA and the WPLA for its failure to warn. The jury returned a verdict for the Mayers. The Mayers were awarded $266,653.75 in damages,² along with the maximum award of $10,000 in treble damages under the CPA. For the attorney fees and costs that the Mayers incurred in the second trial, they were awarded, under the CPA fee-shifting provision, $352,693.50 in attorney fees and $48,691.05 in costs.

¶ 6 As to the Mayers' renewed motion for discovery sanctions, the trial court imposed the following monetary sanctions against Sto to compensate the Mayers for the first trial and first appeal: $468,147.29 in attorney fees and expenses for the first trial; $276,732.75 in interest on that sum; and $33,717 in attorney fees for the first appeal. The trial court stated that the discovery sanctions "serve[d] only to compensate the Mayers for the wasted effort from the first trial" and that the attorney fees requested for the first appeal were likewise "reasonable to compensate them for Sto's discovery abuse." CP at 3476.

¶ 7 Sto appealed, and the Mayers cross-appealed. The Court of Appeals held that the trial court erred in four respects: (1) awarding sanctions without following the procedures set forth in Burnet v. Spokane Ambulance, 131 Wash.2d 484, 933 P.2d 1036 (1997); (2) imposing interest on the sanctions; (3) awarding attorney fees under the CPA for the second trial without excluding the time spent on non-CPA matters; and (4) failing to clarify that the costs awarded for the second trial must be limited to those listed in RCW 4.84.010. Mayer v. Sto Indus., Inc., 123 Wash.App. 443, 98 P.3d 116 (2004). The Court of Appeals upheld the trial court's instruction entitling the Mayers to damages for both the cost of restoration and the diminution in value.

¶ 8 The Mayers petitioned this court for review, and Sto raised additional issues in its answer. We granted review, and both parties thereafter filed supplemental briefs.

ISSUES

¶ 9 (1) Did the trial court abuse its discretion in awarding monetary compensatory discovery sanctions without following the procedures set forth in Burnet, 131 Wash.2d 484, 933 P.2d 1036?

¶ 10 (2) Did the Court of Appeals correctly conclude that the trial court had awarded "interest on the sanctions"? If the interest awarded was not "interest on the sanctions" but "interest as a sanction," was the award an abuse of the trial court's discretion?

¶ 11 (3) Assuming (contrary to Sto's contention in its answer) that the Mayers established the elements of their CPA claim, did the trial court abuse its discretion by awarding attorney fees under the CPA for the second trial without segregating the time spent on the CPA claim from time spent proving the WPLA violation?

¶ 12 (4) Did the Court of Appeals properly direct the trial court to clarify on remand that it had limited the costs awarded under the CPA to those listed in RCW 4.84.010?

¶ 13 (5) Did the trial court err in awarding the Mayers not only damages for repairing the home but also damages for the home's diminished value (so-called "stigma damages")?

ANALYSIS

¶ 14 Standard of Review. A trial court exercises broad discretion in imposing discovery sanctions under CR 26(g) or 37(b), and its determination will not be disturbed absent a clear abuse of discretion. Associated Mortgage Investors v. G.P. Kent Constr. Co., 15 Wash.App. 223, 229, 548 P.2d 558 (1976); Fisons, 122 Wash.2d at 355-56, 858 P.2d 1054; Burnet, 131 Wash.2d at 494, 933 P.2d 1036. An abuse of discretion occurs when a decision is "manifestly unreasonable, or exercised on untenable grounds, or for untenable reasons." Associated Mortgage, 15 Wash.App. at 229, 548 P.2d 558. A discretionary decision rests on "untenable grounds" or is based on "untenable reasons" if the trial court relies on unsupported facts or applies the wrong legal standard; the court's decision is "manifestly unreasonable" if "the court, despite applying the correct legal standard to the supported facts, adopts a view `that no reasonable person would take.'" State v. Rohrich, 149 Wash.2d 647, 654, 71 P.3d 638 (2003) (quoting State v. Lewis, 115 Wash.2d 294, 298-99, 797 P.2d 1141 (1990)). Questions of law are reviewed de novo. In re Firestorm 1991, 129 Wash.2d 130, 135, 916 P.2d 411 (1996); Fisons, 122 Wash.2d at 339, 858 P.2d 1054 (noting that "[a] trial court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law").

¶ 15 (1) Applicability of the Burnet Requirements. The Mayers first moved for discovery sanctions before Judge McCarthy, after the Court of Appeals determined in its first, unpublished decision that Sto's discovery abuse entitled them to a new trial. The Mayers asserted that sanctions were warranted "under authority of CR 26(g)" and this court's decision in Fisons, 122 Wash.2d 299, 858 P.2d 1054. CP at 1670. Adhering to Judge McCarthy's conclusion that the fashioning of an appropriate remedy would have to await the outcome of the second trial, the Mayers filed a new motion after receiving the second jury's favorable verdict in May 2002. In the opening sentence of that motion, the Mayers stated that they were "bring[ing] this Motion for Final Judgment, Fees, Costs and Discovery Sanctions under Civil Rules 26, 37 and 54, RCW 19.86.90 and [Fisons]," CP at 2445, but in the section of their motion devoted to discovery sanctions, they made no mention of CR 37, focusing instead on the interpretation of CR 26 in Fisons. Moreover, the Mayers indicated in the motion that they were attaching their original motion for discovery sanctions filed in 2000, and their arguments in the prior motion were likewise based...