Opinion ID: 1441566
Heading Depth: 3
Heading Rank: 3

Heading: The Trial Court Erred in Limiting the Moores' Damages to Closing Costs

Text: This court reviews an award of damages for an abuse of discretion and independently reviews the law applied by the trial court. Johnson v. Alaska Dep't of Fish & Game, 836 P.2d 896, 910 (Alaska 1991). The Moores moved into the duplex in late 1981, moved out because of the septic problems in early 1983, and were relieved of their obligations to make mortgage payments by settlement with the Kralls in late 1992. They seek all out-of-pocket expenses. [6] The trial court awarded only closing costs. Additionally, because the trial court found the amount recovered by the Moores was negligible in relation to the amount sought in the litigation, it held that there was not a prevailing party for the purpose of attorney's fees and costs.
Breck argues that the no dwelling plat restriction is invalid as a matter of law and therefore the Moores have suffered no damage because of it. [7] In Belland v. O.K. Lumber Co., 797 P.2d 638 (Alaska 1990), we held that a lender suffered no damage when the lender's attorney failed to discover a prior federal tax lien on the mortgaged property. Because a purchase money mortgage takes precedence over all prior liens, the lender was not harmed by the attorney's negligence. Id. at 641-42. The value of the loan was not diminished at all by the presence of the tax lien. In the present case, it is arguable that the no dwelling restriction is not enforceable against the Moores. [8] However, the restriction is not facially void. Thus, the cloud on the Moores' title is sufficient damage to maintain the action. The trial court correctly concluded that the Moores had alleged sufficient damage to state a cause of action for malpractice. In a related argument, Breck claims that the Moores failed to mitigate their damages by declining to pay him an additional fee to quiet title on the property. After the no dwelling restriction was discovered, Breck wrote to the Moores: I would estimate that the total cost of the Quiet Title Action would likely be in the $5,000 to $7,000 range. In view of my arguable exposure to a possible professional negligence claim ... I would be willing to undertake the Quiet Title Action on behalf of the Moores at one-half of my standard hourly rate (i.e. at $75.00 per hour instead of $150.00 per hour) for time expended, plus reimbursement for my out-of-pocket expenses and costs, should the Moores desire to consider this course. The Moores did not in fact pursue this course. Instead the Moores settled with the Kralls and filed suit against Breck for the difference. The Moores acted reasonably. They had a duty to mitigate their damages and, while it might have been unreasonable for them to refuse to allow Breck to attempt to quiet title at Breck's expense, the Moores were under no obligation to pay an attorney to cure his initial error.
The lack of clear proof by the Moores understandably gave the trial court difficulty in determining whether Breck's negligence was a substantial factor in bringing about the Moores' losses, or whether the losses were reasonably foreseeable. However, the trial court was able to determine that Breck's negligence was a legal cause of the Moores' purchase of the duplex. The finding that the Moores had not met their burden of proving proximate cause on several damage allegations is a factual one. Dura Corp. v. Harned, 703 P.2d 396, 406 (Alaska 1985). Factual determinations are reviewed for clear error. Alaska R.Civ.P. 52. Clear error exists when this court is left with a definite and firm conviction on the entire record that a mistake has been made, although there may be evidence to support the finding. Mathis v. Meyeres, 574 P.2d 447, 449 (Alaska 1978). In making this determination, this court views the evidence in the light most favorable to the prevailing party. Id. Our review of the record shows no clear error in the trial court's determination on this point.
The next step is to determine the appropriate method of measuring the damages. A purchaser employs title agents to assure that she has adequate information about significant title restrictions before closing. The no dwelling restriction was shown to be a deal stopper at trial. However, the trial court found that the Moores failed to carry their burden of proving the nature of their damages and their relation to defendant's negligence/breach of contract. Therefore, the damage done to the Moores by entering into the contract could not be measured with any certainty. The court also found that the Moores failed to introduce evidence ... regarding ... any connection between the plat restrictions at issue and the septic system problems. Therefore, the issue of whether an award of all out-of-pocket costs would be appropriate is not before this court, as we find no clear error on these factual determinations of the trial court. However, damages relating to the no dwelling restriction can be measured with sufficient certainty by using a different method. Although there is apparently no Alaska case discussing the measure of damages to be applied in a malpractice case involving restrictions on real property negligently overlooked, several cases provide close analogies. In Advanced, Inc. v. Wilks, 711 P.2d 524 (Alaska 1985), we noted that two theories of damages were possible in a damage to real property case: diminution in value and cost of cure. [9] Advanced at 527. In Hancock v. Northcutt, 808 P.2d 251 (Alaska 1991), we again noted these two alternate methods in a damage to property case. Hancock at 255. Also, in City of Kenai v. Burnett, 860 P.2d 1233 (Alaska 1993), an inverse condemnation case, we stated that the diminution in value measure was a proper one on which to instruct the jury, and noted that the cost of cure measure could be appropriate if the diminution test were shown to be inadequate. Burnett at 1241-42. The Restatement of Torts, in discussing harm to chattels, indicates that these two measures of damages are applicable in an appropriate case. Restatement (Second) of Torts § 928 (1979). Cases from other jurisdictions with similar facts, although not involving attorney malpractice, generally hold that a diminution in value approach is the appropriate measure. [10] However, if the property owner can be made whole by curing the defect, and this cost is less than the diminished value, the cure approach should be used. Using a higher measure would result in unjust enrichment, for the property owner could spend part of the award curing the defect and retain the rest of the award. We note the guiding principal in these cases is making good the injury or loss. Using the lesser of the cost of cure or the diminution in value satisfies this criterion. The Moores are entitled to receive at least the property as they expected to receive it. Therefore, the measure of damages is the lesser of (1) the cost of removing the no dwelling restriction, and (2) the diminution of the property value as measured by the value of the property with and without the restriction. [11] We remand the determination of damages to the trial court for application of these criteria.