Court Opinion

ID: 1044937
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:21:35.68863+00
Date Added: 2024-06-11T12:30:30.070595
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                  March 5, 2013 Session

   TIMOTHY O’KEEFE AND SHARON O’KEEFE v. BARRY GORDON,
           ROGER FARLEY, AND PLANTATION TITLE

                Appeal from the Chancery Court for Hickman County
                   No. 08179C     Timothy L. Easter, Chancellor

                  No. M2011-01476-COA-R3-CV - Filed June 18, 2013

Purchasers of home brought suit against sellers, purchasers’ investment advisor and real
estate agent, title company, and several other parties seeking damages and other relief arising
out of their purchase of the home. Jury found seller liable for intentional and negligent
misrepresentation, negligence, breach of warranties, and violation of the Tennessee
Consumer Protection Act and found purchasers’ investment advisor liable for intentional
misrepresentation. Trial court ordered rescission of the sales contract and awarded
purchasers damages and attorneys fees for seller’s violation of the Consumer Protection Act
Seller and awarded plaintiffs damages against their investment advisor. Seller and
investment advisor appeal. Finding no error, we affirm.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,
J R. and A NDY D. B ENNETT, JJ., joined.

Thomas Irvin Bottorff, Tisha Celess Baldwin, Brentwood, Tennessee; and Melanie Totty
Cagle, Centerville, Tennessee, for the Appellants, Barry Gordon and Roger Farley.

T. Holland McKinnee and Keith Jeremy Woodruff, Franklin, Tennessee, for the Appellees,
Timothy O’Keefe and Sharon O’Keefe.

                                         OPINION

                      I. F ACTUAL AND P ROCEDURAL B ACKGROUND

      Timothy O’Keefe and Sharon O’Keefe (“Plaintiffs”), residents of North Carolina who
were engaged in the business of buying homes at below market price and quickly selling
them at a profit, entered into an agreement with Barry Gordon, a resident of Tennessee,
whereby Gordon was engaged to find three investment properties for the Plaintiffs to
purchase. Upon the recommendation of Gordon, Plaintiffs contracted with Roger Farley and
Carylyn Farley, who owned a business in which they built and sold new homes, to purchase
a newly-constructed four bedroom home in Hickman County.1 Plantation Title, owned by
Roy and Regina Johnson, acted as the closing agent for the sale; Stewart Title provided the
title insurance; and Connie Simmons was the mortgage broker utilized by Plaintiffs.

       The closing was conducted by mail on July 13, 2006. Following the closing, Plaintiffs
hired real estate agent Kathy Helton, the fiancé of Gordon, to resell the home. When the
home did not sell by August 2007, Plaintiffs listed the home with a new real estate agent,
Scott Davis, and installed appliances, a driveway, and concrete steps. At that time, Plaintiffs
discovered that the septic system was approved for a two bedroom home rather than a four
bedroom home.

       Plaintiffs filed suit against Mr. Farley, Gordon, and Helton on June 13, 2008, alleging
that the defendants breached the warranties of fitness for a particular purpose,
merchantability, and good workmanship; committed intentional misrepresentation, negligent
misrepresentation, and civil conspiracy; violated the Tennessee Consumer Protection Act;
breached the contract; and were negligent. Plaintiffs also alleged that Gordon and Helton
had violated the Tennessee Real Estate Broker’s Act, and that Mr. Farley violated the
Contractor’s Licensing Act of 1994 and breached implied and express warranties. The
Plaintiffs alleged that they purchased the home in June 2006, upon the representations of
Gordon, Helton, and Mr. Farley; that Gordon and Helton represented that they could sell the
property quickly at a profit; and that at no time did the defendants disclose various problems
with the property, which included the fact that the home had more bedrooms than the septic
system permit allowed.

       Plaintiffs amended the complaint adding as defendants Ms. Farley; Robert Thomas,
an appraiser of the home; Connie Simmons; Roy and Regina Johnson and Plantation Title;
and Stewart Title. The amended complaint alleged that Ms. Farley had breached the
warranties of fitness for a particular purpose, merchantability, and good workmanship,
breached implied and express warranties, and breached the contract; and that Ms. Farley and
Plantation Title made intentional and negligent misrepresentations and were guilty of civil
conspiracy, violated the Tennessee Consumer Protection Act, and were negligent. All claims
against Thomas, Simmons, the Johnson and Stewart Title were dismissed before trial.

        1
          The record contains three contracts for the sale of the home. The original contract for sale was
signed by Mr. O’Keefe and Mr. Farley on May 18, 2006, and listed the purchase price as $90,000; a second
contract was signed on May 18 listing the purchase price as $122,000; and the final purchase and sale
agreement was signed on July 6 for a purchase price of $125,000. Mr. O’Keefe testified that he only signed
the agreement which stated the purchase price as $90,000, and that the sales contracts listing the purchase
price for $122,000 and $125,000 were fraudulent. Mr. O’Keefe also testified that he signed an addendum
on July 5 which extended the closing date. The agreements at issue in this appeal are the May 18 contract
which listed the purchase price as $90,000 and the July 5 addendum.

                                                   -2-
        A jury trial was held beginning February 14, 2011. At the close of proof, the court
directed a verdict in favor of Plaintiffs as to Plantation Title. The jury deliberated and
rendered its verdict on February 18; judgment on the jury’s verdict was entered on March 10.
The jury found that Mr. Farley was negligent; negligently and intentionally misrepresented
material facts; engaged in an act that was unfair or deceptive towards Plaintiffs and
knowingly advertised or marketed for sale a newly constructed residence as having more
bedrooms than were permitted by the subsurface sewage disposal system permit; and
breached an implied warranty of fitness for a particular purpose, fitness for merchantability,
and good workmanship. The jury attributed 50% of the fault for the damages due to
negligence and negligent misrepresentation to Mr. Farley, 30% to Gordon and 20% to
Plaintiffs.

        The jury found that Gordon was negligent; negligently and intentionally
misrepresented material facts; acted as a real estate broker without a license to do so, failed
to diligently exercise reasonable skill and care in providing services, failed to disclose any
adverse facts of which he had knowledge, failed to provide services with honesty and good
faith, and failed to be loyal to the interest of Plaintiffs.

       The jury found that Ms. Farley and Helton were not liable for any of the claims made
against them.

       The jury found that the total compensatory damages relative to negligence and/or
negligent misrepresentation was $26,000; that “the difference of the actual value of the real
estate which is the subject of this lawsuit when it was sold to Plaintiffs and the value it was
represented to have when it was sold to Plaintiffs is $29,000”; that Plaintiffs suffered
additional actual damages in the amount of $38,000; that Plaintiffs should recover punitive
damages from Mr. Farley and Gordon.

       Plaintiffs waived their punitive damages claims against Mr. Farley and Gordon
following trial. After hearing arguments on April 12 with respect to treble damages and
attorneys’ fees pursuant to the Tennessee Consumer Protection Act, the court entered the
Final Order and Judgment on April 18. The court ordered that the contract between Plaintiffs
and the Farleys be rescinded pursuant to Tenn. Code Ann. § 47-18-104(b)(42)(B) and set out
a procedure to accomplish the rescission. The court entered judgments against the
defendants totaling $249,000, allocated as follows: Mr. Farley—$38,000 in damages and
$72,000 in attorneys’ fees, both pursuant to the Tennessee Consumer Protection Act;
Gordon—$29,000 in accordance with the jury’s verdict; Plantation Title—$38,000 in
damages and $72,000 attorneys’ fees, both pursuant to the Tennessee Consumer Protection
Act. The court denied Plaintiffs’ request for treble damages. The court did not enter
judgment on the $26,000 the jury found as compensatory damages related to negligence or
negligent misrepresentation.

                                              -3-
       Mr. Farley appeals, raising issues with respect to the jury’s findings regarding
intentional and negligent misrepresentation, negligence, breach of warranties, and the
Tennessee Consumer Protection Act. Gordon also appeals, challenging the sufficiency of
the evidence to support the jury’s verdict finding that he intentionally misrepresented
material facts to Plaintiffs and challenging the calculation of the damage award.

                                             II. A NALYSIS

A. Liability of Mr. Farley for violation of the Tennessee Consumer Protection Act

       The court entered judgment against Mr. Farley with respect to the Tennessee
Consumer Protection Act (the “T.C.P.A.”) and did not enter judgment against him in
accordance with the jury’s findings of misrepresentation, negligence, comparative fault, and
breach of warranties and award of damages. Thus, we address only the issues he raises
related to the T.C.P.A.

       Mr. Farley first contends that he cannot be held liable under Tenn. Code Ann. § 47-
18-104(b)(42)(A) because the parties signed a sales agreement before the statute became
effective.

        Tenn. Code Ann. § 47-18-104(b)(42)(A), enacted by 2006 Tenn. Pub. Acts, ch. 671,
became effective July 1, 2006.2 Under the statute, a seller’s liability is triggered by the act
of “advertising or marketing for sale,” and once triggered, can only be avoided by disclosure
of the permitted number of bedrooms prior to the execution of any sales agreement. The
parties first signed a sales agreement on May 18, amended the contract on July 6 to extend
the closing date of the sale, and closed on the sale of the home on July 14. Because the final

       2
           Tenn. Code Ann. § 47-18-104(b)(42)(A)–(B) provides:

       (b) The following unfair or deceptive acts or practices affecting the conduct of any trade or
       commerce are declared to be unlawful and in violation of this part:
                                                   ***
       (42) (A) Knowingly advertising or marketing for sale a newly constructed residence as
       having more bedrooms than are permitted by the newly constructed residence's subsurface
       sewage disposal system permit, as defined in § 68-221-402, unless prior to the execution of
       any sales agreement the permitted number of bedrooms is disclosed in writing to the buyer.
       The real estate licensee representing the owner may rely upon information furnished by the
       owner;

                (B) If a newly constructed residence is marketed for sale as having more bedrooms
       than are permitted by the subsurface sewage disposal system permit and no disclosure of the
       actual number of bedrooms permitted occurs prior to the execution of a sales agreement,
       then the buyer shall have the right to rescind the sales agreement and may recover treble
       damages as provided in § 47-18-109;

                                                   -4-
amendment of the contract occurred after the effective date of the statute which applies to
“any sales agreement,” Mr. Farley can be held liable under the statute’s provisions.

        The jury found that Mr. Farley “engaged in an act that was unfair or deceptive towards
plaintiffs, causing plaintiffs to suffer a loss” and that Mr. Farley “knowingly advertised or
marketed for sale a newly constructed residence as having more bedrooms than are permitted
by the newly constructed residence’s subsurface sewage disposal system permit.” Mr. Farley
contends that he did not commit an unfair or deceptive act under the T.C.P.A. because “(1)
the septic system permit was clearly a matter of public record as recorded on the subdivision
plat; (2) the sewer permit was forwarded to the closing agent for [Plaintiffs] prior to the
closing; and (3) the sewer permit was transmitted to [Plaintiffs] with [the] closing package
prior to the consummation of the transaction.”

        Whether a particular act is unfair or deceptive, for purposes of the T.C.P.A., is a
question of fact. Fayne v. Vincent, 301 S.W.3d 162, 169 (Tenn. 2009) (citing Gaston v.
Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815, 822 (Tenn. 2003). The standard of reviewing
the evidentiary foundation of a jury’s verdict is found at Tenn. R. App. 13(d), which provides
that “[f]indings of fact by a jury in a civil action shall be set aside only if there is no material
evidence to support the verdict.” Tenn. R. App. P. 13(d); Kelley v. Johns, 96 S.W.3d 189,
194 (Tenn. Ct. App. 2002). With respect to this standard of review, this Court has further
explained:

       The process of ascertaining whether evidentiary support exists for
       a jury’s verdict is very deferential toward the verdict. Reviewing courts must
       (1) take the strongest legitimate view of the evidence that favors the verdict,
       (2) assume the truth of all the evidence that supports the verdict, and (3) allow
       all reasonable inferences that sustain the verdict.

Duran v. Hyundai Motor Am., Inc., 271 S.W.3d 178, 204 (Tenn. Ct. App. 2008) (citations
omitted).

        The record contains material evidence in support of the jury’s verdict that Mr. Farley
violated the T.C.P.A. when he sold the home to Plaintiffs without disclosing the defect. A
critical requirement of Tenn. Code Ann. § 47-18-104(b)(42) is that the required disclosure
be to the buyer. While Mr. Farley argues that Plaintiffs had constructive notice of the defect
with the home’s septic system, indirect communication of the information does not meet the
requirements of the statute; thus, the existence of a public record which shows the permitted
number of bedrooms or the fact that the information may have been conveyed to an
intermediary does not comply with the statute or otherwise absolve the buyer of liability
under Tenn. Code Ann. §47-18-104(b)(42)(A).

                                                -5-
        Mr. Farley also argues that he did not violate Tenn. Code Ann. § 47-18-104(b)(42)(A)
because Mr. O’Keefe received a copy of the septic permit in his closing packet. Mr. O’Keefe
testified that he did not remember receiving a copy of the required documentation in his
closing packet. The closing agent could not recall whether the document had been
transmitted to Mr. O’Keefe, and Mr. Farley testified that he did not convey the information
to Mr. O’Keefe directly. This is a factual issue that was resolved by the jury. The record
contains material evidence in support of the jury’s finding that Plaintiffs did not receive and
that Mr. Farley did not disclose the number of bedrooms allowed by the subsurface sewage
disposal system permit and thus, that Mr. Farley violated Tenn. Code Ann. § 47-18-
104(b)(42). We further note in any event that the statute requires that Mr. Farley to disclose
the number of bedrooms allowed by the permit prior to the execution of any sales agreement,
not that he disclose such information prior to closing.3

B. Liability of Gordon

        1. Evidence in support of the jury’s verdict

       Gordon likewise challenges the sufficiency of the evidence to support the jury’s
verdict finding that he intentionally misrepresented material facts.

        To sustain a cause of action for intentional misrepresentation,4 the plaintiff must show
that: 1) the defendant made a representation of an existing or past facts; 2) the representation
was false when made; 3) the representation was in regard to a material fact; 4) the false
representation was made either knowingly or without belief in its truth or recklessly; 5)
plaintiff reasonably relied on the misrepresented material fact, and 6) plaintiff suffered
damages as a result of the misrepresentation. Devorak v. Paterson, 907 S.W.2d 815, 819
(Tenn. Ct. App. 1995) (quoting Metro. Gov’t of Nashville, Davidson Co. v. McKinney, 852
S.W.2d 233, 237 (Tenn. Ct. App. 1992)).

       Mr. O’Keefe testified that Plaintiffs, who were residents of North Carolina, entered
into the contract with Gordon, relying on him to advise them which properties to purchase

        3
          We also dispose of Mr. Farley’s contention that Plaintiffs did not bring the action within the one
year statute of limitations because Plaintiffs allegedly received a copy of the septic permit in their closing
packet on July 14, 2006. Tenn. Code Ann. § 47-18-110 provides that “any action commenced pursuant to
§ 47-18-109 shall be brought within one (1) year from a person’s discovery of the unlawful act or practice.”
Mr. O’Keefe testified that he did not discover the problem with the septic permit until August 2007. The
action was brought in June of 2008, within one year of Plaintiffs’ discovery.
        4
         The terms “intentional misrepresentation,” “fraudulent misrepresentation,” and “fraud” are
synonymous and may be used interchangeably. Concrete Spaces, Inc. v. Sender, 2 S.W.3d 901, 905 n.1
(Tenn. 1999). We will refer to this claim as intentional misrepresentation.

                                                     -6-
in Tennessee; that they trusted him completely as an advisor and friend; that he selected the
property for purchase; that he advised Plaintiffs that Mr. Farley would sell them the home
below market value for $90,000; that homes were selling quickly in the market; that the home
was in excellent condition with a market value of $135,000; and that it was only after
Plaintiffs listed the home with a second real estate agent that they discovered that there were
defects in the construction of the home. In the course of his examination by Plaintiffs, Mr.
Farley testified regarding the nature of his relationship with Gordon; that Gordon brought
buyers to him and marketed homes on Mr. Farley’s behalf; that Gordon loaned him $35,000
two weeks prior to the closing when Mr. Farley was in a financial bind; and that Gordon
wanted Mr. Farley to rename a subdivision “Gordon’s Crossing” in Gordon’s honor.

       All of this is material evidence upon which the jury could conclude that the
relationship that Gordon maintained with the Farleys conflicted with his contractual
relationship with Plaintiffs and that the conflict led him to make false representations of
material facts and that he made these misrepresentations knowingly or without belief in their
truth of falsity. Gordon’s contention in this regard is without merit.

       2. Benefit of the Bargain Damages

       Gordon argues that “by the trial court allowing the ‘intentional misrepresentation’ to
stand, and awarding the $29,000.00 in ‘benefit of the bargain’ damages, Mr. O’Keefe is
being unjustly enriched . . . .” Gordon further contends that he should not be liable for
damages because Plaintiffs failed to mitigate their damages.

       This Court has summarized the appropriate method for calculating damages for
intentional misrepresentation as follows:

       In an action for damages caused by a fraudulent misrepresentation, the proper
       measure of the plaintiffs’ general damages is the benefit of the bargain rule.
       Ford Motor Co. v. Lonon, 217 Tenn. 400, 398 S.W.2d 240 (1966); Shwab v.
       Walters, supra [147 Tenn. 638, 251 S.W. 42 (1923)]; Augur v. Smith, 90 Tenn.
729, 18 S.W. 398 (1891) and Hogg v. Cardwell, 36 Tenn. 151 (1856). This
       measure of damages allows the plaintiff to recover the difference between the
       actual value of the property he received at the time of the making of the
       contract and the value that the property would have possessed if [the
       defendant’s] representations had been true. 37 Am. Jur. 2d, Fraud and Deceit,
       § 353, p. 473 (1968); see Shwab v. Walters, supra; 13 A.L.R.3d,
       Damages—Fraudulent Representation, § 3, p. 885 (1967). The application of
       this measure of damages compels the defendant to make good on the false
       representations. The measure of damages and the fixing of the value of the
       property are to be determined as of the time of the transaction. 37 Am. Jur. 2d,

                                              -7-
        § 365, p. 495 (1968); 13 A.L.R.3d, §§ 2–3, pp. 882–902 (1967); McCormick
        on Damages, § 122, pp. 456–457 (1935).

Elchlepp v. Hatfield, 294 S.W.3d 146, 152 (Tenn. Ct. App. 2008) (quoting Haynes v.
Cumberland Builders, Inc., 546 S.W.2d 228 (Tenn. Ct. App. 1976)).

        In accordance with the jury’s finding that Gordon intentionally misrepresented
material facts, Plaintiffs were entitled to recover the difference between the actual value of
the property they received at the time of the making of the contract and the value that the
property would have possessed if Gordon’s representations had been true. Plaintiffs paid
$90,000 for property they believed—based on Gordon’s representations—that they could
resell immediately at its market value of $135,000. The jury’s award of $29,000 is within
the range of values established by the price Plaintiffs paid for the property and the testimony
of Robert Thomas, a real estate appraiser, who testified that he appraised the home in 2006
as having a value of $125,000.5 Applying the formula for calculating benefit of the bargain
damages, the jury’s verdict is supported by the evidence. The award of damages against
Gordon is based on the jury’s finding of intentional misrepresentation and is separate from
the equitable remedy of rescission of the sale of the property which Plaintiffs were awarded
against Mr. Farley for his violation of the T.C.P.A.6

        Mr. Gordon contends that Plaintiffs are not entitled to recover benefit of the bargain
damages because they did not attempt to correct the septic permit defect by applying to have
the property retested and then installing the field lines necessary to accommodate a four
bedroom home. The principle that an injured party must mitigate his damages is not
applicable under the facts of this case. As noted above, the damages in this case are based
on the intentional misrepresentation of Mr. Gordon and are what the jury determined would

        5
         Thomas further testified that his appraisal was inaccurate because he was not aware of the septic
permit defect and that such a defect would decrease his valuation of the home.
            6
            In Goodman v. Jones, No. E2006-02678-COA-R3-CV, 2009 WL 103504, at *10 (Tenn. Ct. App.
 Jan. 12, 2009), the buyer of a home sued the seller seeking rescission and damages on theories of fraud,
 misrepresentation, breach of contract and violation of the T.C.P.A. The trial court required plaintiffs to
 elect between rescission and damages; the plaintiffs elected rescission and the case was submitted to the
 jury on that basis, after which the jury held for the seller. On appeal, this Court reversed the trial court and
 remanded for a retrial, holding that the court erred in failing to instruct the jury on the buyers’ theories of
 breach of contract and negligent misrepresentation. In connection with the remand, the Goodman court
 discussed the election of remedies between rescission and damages and concluded that “a judgment for
 rescission and damages is not necessarily inconsistent” and that “the Buyers, if successful on the issue of
 liability, may well be entitled to damages as well as rescission and restitution.” The conclusion in Goodman
 is appropriate in the case at bar, particularly where the Plaintiffs were successful in establishing liability
 against Mr. Farley under the T.C.P.A. and against Mr. Gordon for intentional misrepresentation. Under the
 facts of this case, a judgment for rescission and as well as one for benefit of the bargain damages is not
 inconsistent, neither does it result in a double recovery.

                                                      -8-
compel him to make good on his false representations; in this circumstance, where it is
Gordon’s misrepresentations that are being remedied, Plaintiffs have no duty to mitigate.7

                                            III. C ONCLUSION

        For the reasons set forth above, we affirm the judgment of the trial court.

                                                           __________________________________
                                                            RICHARD H. DINKINS, JUDGE

        7
          See Haynes, 546 S.W.2d at 234, in which the plaintiff sued to recover benefit of the bargain
damages arising from a misrepresented property line; the court held, under the facts of that case, that there
was “no possible way that the plaintiffs could have mitigated these damages.” In this case, Plaintiffs were
buying the property for investment purposes on the basis of representations made by Gordon, including the
return on their investment; the damages assessed were based on the difference in values. We do not agree
that, under these facts, Plaintiffs had a duty to expend additional funds in an effort to mitigate their loss,
particularly in the absence of proof that expenditures on their part would have altered the values.

                                                     -9-