November 19, 2008
MARYA THOMAS COBURN, PLAINTIFF-RESPONDENT,
J.C.C. CONSTRUCTION CORP., A NEW JERSEY CORPORATION, DEFENDANT-APPELLANT, AND JOHN E. COLLAZUOL & ASSOCIATES, P.C., A NEW JERSEY CORPORATION, DEFENDANT.
J.C.C. CONSTRUCTION CORP., THIRD-PARTY PLAINTIFF,
KENNETH J. VAN WYCK, THIRD-PARTY DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-2149-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 16, 2008
Before Judges Skillman, Graves and Grall.
Defendant J.C.C. Construction Corp. (J.C.C.) appeals from a final judgment in favor of plaintiff Marya Thomas Coburn. Coburn sought damages for failure of a retaining wall situated on property that is the site of a new home she purchased from J.C.C. A jury found that J.C.C. breached the contract of sale and violated the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20. The trial court reduced damages and entered judgment against J.C.C. in the amount of $403,652.93 - $89,250 for breach of contract and violation of the CFA, which was trebled, and $135,902.93 for counsel fees and costs, N.J.S.A. 56:8-19. Prior to trial, Coburn accepted $19,000 in settlement of a claim asserting negligence by the engineering firm that prepared the plot plan for J.C.C., defendant John E. Collazuol and Associates, P.C.
On appeal J.C.C. claims the evidence was not adequate to establish a violation of the CFA, alleges plain error in the jury charge, and contends the damage award for breach of contract is excessive. Although the evidence is adequate to establish a violation of the CFA, the jury charge was clearly capable of leading to a verdict based on insufficient grounds; a new trial on that claim is required. Moreover, the contract damages provide compensation in excess of the amount needed to make Coburn whole; therefore, the award must be reduced.*fn1
The evidence relevant to J.C.C.'s liability was as follows. The owners of J.C.C., Richard and James Venetsanos, demolished an existing residence on a lot in Englewood Cliffs and built a new house and the retaining wall that is the subject of this dispute. The house, rear-yard, and a portion of the driveway and side-yards are situated on an elevated area of the lot bordered on the rear and both sides by the retaining wall.
After the new house and retaining wall were built, Coburn visited the property, which J.C.C. was offering for sale. She spoke with Richard Venetsanos, and he told her the house was well-built with good materials. They did not discuss the retaining wall, and Coburn knew nothing about the plot plan prepared by Collazuol. Coburn purchased the property for $1,585,204 in March 2002. She shares the residence with Donald E. Wilson and his wife.
By summer 2002, Wilson noticed that the gates Coburn had installed at the driveway were uneven and, on further inspection, saw that the retaining wall was leaning. The Venetsanos came to look at the wall, but they either did not see or refused to acknowledge a problem.
In February 2003, Martin Spence and Michael McNally, both civil engineers who were qualified as experts at trial, inspected the retaining wall. They noted that the section of the wall along the rear of Coburn's property was bowed and leaning away from the soil it retained. The engineers explained that when a retaining wall leans away from the load, it has failed and continues to fail over time until it collapses.
McNally obtained the plot plan prepared by Collazuol and arranged for an excavator, Kenneth Van Wyck, to expose the area between the wall and the soil it retained and a seepage pit shown on the plot plan. After Van Wyck dug test holes along the rear portion of the wall and excavated to uncover the seepage pit shown on the plot plan, a portion of the rear side of the wall collapsed.
The excavation disclosed that the seepage pit had not been built. The purpose of the seepage pit is drainage; water remaining in the soil behind a retaining wall puts pressure on the wall and pushes the wall forward.
Instead of building the seepage pit, J.C.C. installed drains in the lawn that were connected to a pipe and a storm sewer. Because the drain openings were higher than the level of the grass, surface water could not reach the drain unless it pooled and formed a one-inch-deep puddle of water.
The test holes dug along the rear side of the retaining wall disclosed structural features not observable from the front of the wall. The plot plan called for placement of a twelve-inch wide band of clean, crushed stone along the entire wall from the base to the top and between the wall and the soil behind it. If installed, this layer of crushed stone would serve to drain water from behind the wall. The engineers found only a minimal amount of stone behind Coburn's wall. The stone that was there was mixed with silty, clay-like soil that was retaining moisture. The only crushed stone was near the bottom of the wall and a drainage pipe. The pipe had been damaged by the weight of moist soil above it and was clogged with silt. The engineers estimated that forty to fifty tons of crushed stone would have been required to complete the project according to the plot plan.
The test holes also revealed that J.C.C. built the wall with blocks that were different than those specified in the plot plan. The plot plan called for Keystone blocks that were twenty-one-and-one-half inches deep. The blocks J.C.C. used were Allen blocks, which were approximately twelve inches deep and lighter than the Keystone blocks. Unlike Keystone blocks, Allen blocks do not have a built in "batter," which causes the wall to lean back toward the load it must bear. While McNally noted that Allen blocks provide less stability than Keystone blocks, he acknowledged that a retaining wall can be built with the Allen blocks if it is done properly.
Based on their inspection of the site, the experts gave their opinions on the reasons for the failure of Coburn's wall. According to McNally, the "water pressure in the soil caused the failure" of the wall and use of Allen blocks "didn't help." He concluded that the wall could not be salvaged. In Spence's opinion, the failure of the retaining wall was attributable to a combination of factors - grading conditions, placement of the drain inlets above grade level, the lack of crushed stone behind the wall and use of a different block.
J.C.C. presented testimony to establish that its various deviations from the plot plan were approved, either by Collazuol or by the municipal engineer.
The CFA provides protection from unlawful practices in connection with the sale of real estate. N.J.S.A. 56:8-2. Upon proof of an unlawful practice and an ascertainable loss, a plaintiff is entitled to both "threefold the damages sustained" and "reasonable attorneys' fees, filing fees and reasonable costs of suit." N.J.S.A. 56:8-19. The CFA is the Legislature's response to "selling practices" that "victimize consumers." Fenwick v. Kay Am. Jeep, Inc., 72 N.J. 372, 376 (1977). Contract damages compensate the victim's loss; treble damages available under the CFA are intended to deter unlawful practices by punishing the wrongdoer, and the award of counsel fees and costs permits the victims "to pursue consumer-fraud actions without experiencing financial hardship." Cox v. Sears Roebuck & Co., 138 N.J. 2, 21, 25 (1994).
The "unlawful practices" addressed by the CFA include "misrepresentation" of fact and "knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission."
N.J.S.A. 56:8-2.*fn2 The jury in this case found one violation based on J.C.C.'s omission of material fact.
To establish a violation of the CFA based on non-disclosure, a plaintiff must prove that the defendant knowingly omitted a material fact intending the buyer to rely on facts known without considering the information withheld. Cox, supra, 138 N.J. at 18. In the context of a real estate transaction, the fact must be material to the decision to purchase the property. See Gennari v. Weichert Co. Realtors, 288 N.J. Super. 504, 535 (App. Div. 1996), aff'd, 148 N.J. 582 (1997). A fact is material when it is important to the particular buyer's decision or when it would be important to a decision made by a reasonable buyer. Ji v. Palmer, 333 N.J. Super. 451, 462 (App. Div. 2000).
Where omissions of material fact are at issue, proof of the seller's knowledge of the materiality of the information and intent for the buyer to rely on what the buyer knows without the benefit of the material information withheld serve a significant purpose. Such proofs provide "an important safeguard against the imposition of liability . . . for the innocent failure to make a complete disclosure of facts material to a transaction." Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 603 (App. Div. 1990), aff'd o.b., 124 N.J. 520 (1991). Imposition of punitive treble damages is not authorized to deter unwitting failures to disclose information the seller does not know or recognize as important to the buyer's decision; such omissions are not "deceptive" and do not fall within the practices the CFA is designed to address. See Fenwick, supra, 72 N.J. at 376-77 (discussing the scope of the CFA and distinguishing omission of information that a seller is obligated to disclose by regulation and innocent omission).
Accordingly, a plaintiff who seeks to establish liability based on omission of material fact must prove: 1) a fact existing at the time of the transaction was not disclosed; 2) that the fact, if disclosed, would be important to the plaintiff's decision to purchase or to the decision of any reasonable buyer; 3) that the defendant knew the fact and its importance at the time of the transaction; and 4) that the defendant withheld the information intending for the buyer to make a decision without knowing the fact.
Accepting the truth of Coburn's evidence and affording her the benefit of all favorable inferences, we conclude that the evidence in this case was sufficient. See Verdicchio v. Ricca, 179 N.J. 1, 30-31 (2004). Reasonable jurors could conclude that J.C.C. knew that the retaining wall was at risk of failure when it sold the property to Coburn, knew that the information would be important to a reasonable buyer and failed to disclose that information intending for her to make a decision to buy relying on the stability of the newly-built wall in the absence of information about the risk.
First, the expert testimony, if believed, permitted a finding that the retaining wall was at risk of failure when J.C.C. sold the property to Coburn. There was no evidence that J.C.C. disclosed that fact.
Second, the jurors could have concluded that the risk of the retaining wall's failure would be important to the decision of a reasonable buyer. This retaining wall was not insignificant. It shored up the soil on which a portion of the driveway, the rear-yard and a portion of the side-yards are situated.
Third, the jurors could have found that when J.C.C. sold the property to Coburn, J.C.C. knew that the wall was at risk of failure and knew that the information would be important to a decision made by any reasonable buyer. If the jurors found that J.C.C., whose principals are professional builders, understood the significance of the various components of the plot plan to the stability of the retaining wall, they could infer that J.C.C. knew there was a risk of failure due to omission of the crushed stone and its placement of drains in a position that made them ineffective. The jurors could also conclude that J.C.C. was well aware of the cost and purpose of the retaining wall and knew that a risk of its failure would be important to the decision made by a reasonable buyer.
Fourth, the jurors could have determined that J.C.C. withheld information about the risk of failure with the intention that Coburn would rely on what she saw. A principal of J.C.C. told Coburn that the house was well-constructed with good materials, and J.C.C. could expect her to rely on the stability of the newly-built wall if it did not disclose the risk of failure.
While the evidence was sufficient to support a finding that J.C.C. violated the CFA, the jury instruction, read as a whole, did not adequately explain the legal principles and how the jury should apply them. The instruction, in fact, was misleading on the critical issues. See Viscik v. Fowler Equipment Co., 173 N.J. 1, 18 (2002). J.C.C. did not object at the time, but we are convinced that the jury charge was clearly capable of producing an unjust result. R. 2:10-2.
The jury was directed as follows:
[Y]ou must decide whether the plaintiff has proven by a preponderance of the credible evidence that defendant knowingly concealed or omitted an important and significant fact with the intent that plaintiff Coburn would rely on the facts as communicated to her without having the opportunity to also consider the other facts which were concealed, suppressed, omitted in connection with the sale of the real estate.
Or, whether defendant, [J.C.C.] failed to disclose to plaintiff that it had failed to install the required amount of crushed stone as required in the approved specification plan in connection with the construction of the retaining wall at her premises, and used and/or used the retaining wall blocks that were little more than half the size of the retaining wall blocks that were called for in the engineer's designed and approved plan.
If plaintiff has shown that those acts took place and if so, that those acts were a knowing concealment, suppression or an omission of an important fact intended to be relied upon by plaintiff Coburn, then you are next going to have to decide whether that conduct brought about damages to plaintiff Coburn, and if so, how much.
Read as a whole, this instruction permitted, if not required, the jury to conclude that J.C.C. knowingly omitted a material fact if it determined that J.C.C. knew it used blocks different than those specified or knew it did not install the specified clean, crushed stone. Undoubtedly, J.C.C. knew and did not disclose those facts; a rational juror could not conclude otherwise on this evidence.
The error in the charge is that failure to disclose a fact known is not an adequate basis for a finding of liability for violation of the CFA. The jury must find that the defendant knew and withheld information important to the particular buyer's decision or important to the decision made by a reasonable buyer.
A jury could not find that J.C.C.'s deviations from the plot plan, in themselves, were important to Coburn's decision. This is not a case in which the buyer retained contractors to perform work with specific materials in accordance with specific plans. In that context, a jury could determine that substitution of materials significantly less expensive than or inferior in quality to those specified in the contract is important to that buyer's decision. See, e.g., New Mea Constr. Corp. v. Harper, 203 N.J. Super. 486, 500-01 (App. Div. 1985) (discussing substitution of "substandard" materials in a contract for "a custom built house"). But when a buyer, like Coburn, has not contracted for specific materials and methods or reviewed a specific plan, deviations from the plan in and of themselves cannot be deemed important to that buyer.*fn3
The question in this case was whether J.C.C. knowingly withheld information that would be important to the decision of a reasonable buyer. On the facts of this case, the only information a jury could find important was the risk of the retaining wall's failure.
The jury charge did not direct the jurors to consider the questions relevant to J.C.C.'s liability, which were whether the risk of failure existed at the time of sale, whether that risk would be important to a reasonable buyer, and whether J.C.C. knew the retaining wall was at risk of failure when it sold the property to Coburn and knew that risk would be important to a buyer. Instead, the jury charge suggested that liability could be based on J.C.C.'s failure to disclose deviations from the plot plan. The deviations were evidence relevant to establish J.C.C.'s knowledge of the risk of failure, but they were not material facts.*fn4
Accordingly, we reverse and remand for a new trial on Coburn's alleged violation of the CFA. That disposition makes it unnecessary for us to address J.C.C.'s claim that this verdict on liability is against the weight of the evidence or consider objections to the amount awarded for counsel fees and costs.
We consider J.C.C.'s objection to the damages for breach of contract. Although J.C.C. does not contest the finding of liability based on breach of contract, J.C.C. contends that the contract damages are excessive, even as reduced by the trial court on J.C.C.'s motion for a new trial. We agree.
The function of damages for breach of contract is "to make the injured party whole." Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 13, (2004). Proper damages place the aggrieved party in the position he or she would have occupied but for the breach. Ibid. The party seeking damages must provide sufficient evidence to permit a fair and reasonable estimate of the amount required to make that party whole. Totaro, Duffy, Cannova & Co., LLC v. Lane, Middleton & Co., LLC, 191 N.J. 1, 14 (2007). And, the award cannot duplicate damages for the same injury that the plaintiff has recovered from another. Dimaria Constr., Inc. v. Interarch, 351 N.J. Super. 558, 574 (App. Div. 2001), aff'd, 172 N.J. 182 (2002); Restatement (Second) of Judgments § 50(2) & comment c (1982).
Coburn had a contract for replacement of the entire retaining wall with Allen blocks for a cost of $74,250. She planned to use Allen blocks, but the cost would be between $12,000 and $15,000 higher if Keystone blocks were used. There was evidence that replacement would entail work not included in the $74,250 estimate, but there was no evidence that provided a basis for estimating the cost of that work.
The trial court added $15,000 for Keystone blocks to Coburn's contract price and fixed damages at $89,250. The court did not deduct the $19,000 Coburn recovered for the same injury when she settled her claims against Collazuol.
Contract damages must be reduced by $15,000. The measure of Coburn's damages was the cost of acquiring a stable retaining wall built with Allen blocks. That was the benefit of the contract Coburn lost due to J.C.C.'s breach. There was no evidence that Allen blocks could not be used to build a stable and effective retaining wall, and Coburn planned to build her new wall with Allen blocks.
An additional $19,000 must be deducted. Coburn was not entitled to recover damages from J.C.C. that duplicated the amount she received from her settlement with Collazuol as compensation for the defective wall. The double recovery was not necessary to restore the benefit of Coburn's bargain.
We reject J.C.C.'s claim that the evidence did not support a finding that the entire wall was defective and in need of replacement. J.C.C. argues that damages should be limited to the cost of replacing the rear section of the wall, because the test holes did not establish that J.C.C. failed to place crushed stone behind the side sections of the wall. The jurors were not compelled to accept testimony from J.C.C., which suggested that stone was used elsewhere, and they could reasonably infer that J.C.C. built all three sides of the wall in the same manner. That inference is further supported by evidence that Wilson first noticed that the wall was leaning after discovering that gates installed at the front of the property were not level.
Coburn's claim that the damage award should not be reduced because the award does not include all of the costs of replacement lacks merit. The evidence does not provide the foundation needed to permit a reasonable and fair estimate of those costs.
Accordingly, contract damages are fixed at $55,250. The judgment based on violation of the CFA is reversed and remanded for a new trial; the judgment based on breach of contract is affirmed as modified.