Schwartz v. Rockey

• Decision Date: 17 October 2007
• Citation: 932 A.2d 885
• Parties: Richard H. SCHWARTZ and Melanie A. Schwartz, Husband and Wife, Appellees v. William R. ROCKEY and Connie M. Rockey, Husband and Wife, Appellants v. Holly Corace and Howard Hanna Company, Appellees. Richard H. Schwartz and Melanie A. Schwartz, Husband and Wife, Appellees v. William R. Rockey and Connie M. Rockey, Husband and Wife, Appellees v. Holly Corace and Howard Hanna Company, Appellants.
• Court: Pennsylvania Supreme Court

932 A.2d 885

Richard H. SCHWARTZ and Melanie A. Schwartz, Husband and Wife, Appellees v. William R. ROCKEY and Connie M. Rockey, Husband and Wife, Appellants v. Holly Corace and Howard Hanna Company, Appellees.

Richard H. Schwartz and Melanie A. Schwartz, Husband and Wife, Appellees v. William R. Rockey and Connie M. Rockey, Husband and Wife, Appellees v. Holly Corace and Howard Hanna Company, Appellants.

Supreme Court of Pennsylvania.

Argued March 5, 2007.

Decided October 17, 2007.

Eric George Soller, Pietragallo, Bosick & Gordon, L.L.P., Pittsburgh, for Holly Corace and Howard Hanna Co., appellants.

Thomas C. Gricks, III, Paul H. Titus, Schanader Harrison Segal & Lewis, L.L.P., Pittsburgh; Eckert Seamans Cherin & Mellott, L.L.C., for William R. Rockery and Connie M. Rockey, appellees.

Fred J. Sentner, Cannonsburg, for Richard H. Schwartz and Melanie A. Schwartz, appellees.

BEFORE: CAPPY, C.J., CASTILLE, SAYLOR, EAKIN, BAER AND BALDWIN, JJ.

OPINION

Justice SAYLOR.

This appeal involves a civil action initiated by home purchasers against the sellers for fraudulent non-disclosure and/or concealment of water infiltration. The questions presented concern whether the purchasers/plaintiffs made an election of remedies that foreclosed rescission, and whether a finding of outrageous or egregious conduct is required to support an award of treble damages in a private action under the Unfair Trade Practices and Consumer Protection Law.

In March 2001, Appellees Richard and Melanie Schwartz ("Buyers"), commenced the underlying action against Appellants, William and Connie Rockey ("Sellers"), and Sellers joined as additional defendants the real estate agent who marketed the property, Holly Corace, as well as Howard Hanna Company, the real estate company with which Ms. Corace was associated (collectively, with Sellers, "Appellants"). Buyers pursued claims of common-law fraud and violations of the Unfair Trade Practices and Consumer Protection Law,¹ initially seeking compensatory damages under both theories of relief, in addition to treble damages and attorneys' fees under the UTPCPL. See 73 P.S. § 201-9.2. Subsequently, however, Buyers sought to amend their complaint to substitute a demand for rescission of their purchase and restitution. That amendment was permitted on the written submissions and after argument, with the common pleas court indicating in its order that Buyers' delay was not caused by a lack of due diligence. After a non-jury trial, the court entered a verdict in favor of Buyers, awarding them compensatory damages in the amount of $26,000, representing diminution in the value of the property on account of material non-disclosure and/or concealment.² The court, however, declined to award rescission, restitution, treble damages, or attorneys' fees.

In connection with the verdict, the common pleas court issued factual findings developing the fraudulent conduct underlying Buyers' claims. See Schwartz v. Rockey, No. 2000-5705, slip op. (C.P. Washington Jun. 30, 2004). Within the period in which Sellers owned the subject property located on Stafford Drive in Peters Township, the property experienced several instances of substantial water infiltration. The court developed that the most major events occurred as a result of a connection between basement and outside stairwell drains to the local municipal storm sewer system. During a period of intense use in 1995, the storm water system became overloaded as a result of a broken water main, and water backed up through the floor drainage system into the interior and outside-stairwell drains of the Stafford Drive property. Subsequently, Sellers installed a back-up flow preventer in the interior floor drain, and, in 1997, they also installed a sump pump in the sidewall of the stairwell, which was most immediately responsive to more modest infiltration that occasionally resulted from blockage of the stairwell drain from leaves or other debris. Despite the preventative efforts, however, in June 1998, the municipal system again overloaded, and a substantial accumulation of water collected in the outside stairwell of the Stafford Drive property. To relieve pressure, the water was eventually discharged into the basement, reaching a maximum level of up to eighteen inches from the floor and ruining carpeting and wall coverings in a finished portion of the basement. Sellers immediately (and personally) repaired the damage, including the replacement of a lower section of wallboard, painting, and carpeting.

The court's findings also detail that, two months after the June 1998 flooding, Sellers entered into a sales listing agreement identifying Appellants Holly Corace and Howard Hannah Company as the listing agent and listing agency and broker, respectively. At the same time, Sellers completed a disclosure statement furnished by Ms. Corace, on which they disclosed generally that the property had experienced water infiltration, which they described variously as "storm drain backup" and "storm drain plugged causing water backup." Sellers characterized the 1997 installation of the external sump pump as a remedy, despite the more recent flooding incident. Further, the common pleas court found that Sellers asked Ms. Corace whether these disclosures were appropriate, and her reply was to indicate that "the less [she] knew, the better." According to the court, Buyers received the disclosure statement the next month and assumed that the installation of the sump pump in 1997 had cured the water issue, and neither Sellers nor Ms. Corace advised them of the extensive flooding only a few months before. After a home inspection, at which the court found that Sellers provided only general information regarding water seepage and the remedial efforts taken in 1997 to address that condition,³ a sale was consummated in December 1998 at a purchase price of $214,000. The court indicated that, shortly after the purchase, Buyers learned of the June 1998 flooding incident. It found as a fact that, had Buyers been aware of the event prior to the sale, they would not have purchased the property.

On the merits of Buyers' common-law fraud claims, the common pleas court determined that all elements of fraud were present, centered on non-disclosure and/or active concealment by Sellers and Ms. Corace of material defects to the premises. See, e.g., Schwartz, No. 2000-5705, slip op. at 14 (finding that "the real estate agent and the Defendants acted intentionally to dissuade the Plaintiffs from making a more careful inspection calculated to disclose the full extent of the water damage."). In terms of damages, the common pleas court recognized that, upon discovery of actionable fraud, under prevailing Pennsylvania law an innocent party to an affected agreement may either affirm the contract and seek damages at law or repudiate the contract and commence an action for rescission. See, e.g., Wedgewood Diner, Inc. v. Good, 368 Pa.Super. 480, 482-83, 534 A.2d 537, 538-39 (1987). The court noted, however, that once a party elects a remedy, he is bound by it. See id. at 482, 487, 534 A.2d at 538, 540-41 (explaining, inter alia, that "once a party makes a binding election of one remedy over another, he will be precluded from thereafter maintaining an action on the other"). The court also observed that, in order for a party to have a right to rescission, "it is his duty to act promptly, and, if he elects to rescind, to notify the other party within a reasonable time so that the rescission may be accomplished at a time when the parties may still be restored as nearly as possible, to their original positions." Schwartz, 2000-5705, slip op. at 15 (quoting Galati v. Potamkin Chevrolet Co., 198 Pa.Super. 533, 537, 181 A.2d 900, 902 (1962)). Applying these principles, the court held that Buyers were not entitled to rescind the sales contract, because they had effectively affirmed the contract by living in the house for six years and by not promptly seeking to rescind once they became aware of the undisclosed water damage, when the parties might still have been restored to their original positions. The common pleas court stressed that Buyers were aware of the June 1998 incident almost two years prior to the filing of their original complaint; however, in that complaint they did not seek rescission but only monetary damages.

Concerning Buyers' claim for treble damages under the UTPCPL, the court noted that the statute does not explicitly require any specific findings to support an award, see 73 P.S. § 201-9.2(a) (prescribing that, in a private action under the UTPCPL, "[t]he court may, in its discretion award up to three times the actual damages sustained"), such as a finding of outrageous and egregious conduct as would be required to support an award of punitive damages under common law. See generally Feld v. Merriam, 506 Pa. 383, 395, 485 A.2d 742, 747-48 (1984) (explaining that "punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others.") (quoting Restatement (Second) of Torts § 908(2) (1977)). However, in channeling the exercise of its discretion, the court relied on Johnson v. Hyundai Motor America, 698 A.2d 631 (Pa.Super.1997), which applied a heightened standard for assessing the availability of treble damages under the UTPCPL, reasoning that "since the legislature has not provided for a specific finding of outrageous conduct before an award of treble damages for breach of contract/warranty may be imposed, we must trust that the courts will be guided by the well-established general principles of law governing punitive damages when exercising discretion under the UTPCPL." Id. at 639. The court concluded that, although it believed that the Rockeys' and Ms. Corace's conduct was fraudulent, "it does not necessarily rise to the level necessary for this Court to award treble damages." Schwartz, 2000-5705, slip op. at...