Opinion
No. A04-47.
Filed September 21, 2004.
Appeal from the District Court, Anoka County, File No. C0-01-6486.
Bernadette Russell, Brent Russell, (pro se appellants)
Jerome M. Rudawski, Rudawski Law Office, (for respondents)
Considered and decided by Toussaint, Chief Judge; Lansing, Judge; and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
In this appeal from the denial of alternative motions for amended findings or a new trial in an action for damages based on fraudulent misrepresentation in the sale of residential property, the buyers challenge the district court's dismissal of one claim and the calculation of damages on the remaining claims. Because the district court applied the correct standard for measuring damages and did not abuse its discretion in dismissing an unsubstantiated claim, we affirm.
FACTS
Brent and Bernadette Russell purchased a home at 13036 Eldorado Street Northeast in Blaine by warranty deed from Suzanne and DuWayne Carroll in 2000. Although the house originally listed at $171,500, the Russells negotiated a reduced price of $164,000 because the lower level needed carpeting, the backyard sloped, and the driveway was in poor condition. Brent Russell is a licensed real-estate agent who has worked in the real-estate industry for more than sixteen years; the Russells viewed the house three separate times before closing.
In the purchase agreement, the Carrolls stated that the house did not have a wet basement, roof leakage, or any wall or ceiling damage. In an accompanying seller's disclosure, the Carrolls indicated that the house did have a cracked floor or walls and wrote "normal cracks" beside that entry. The Carrolls also noted that new shingles had been added over the roof's old shingles. When the Russells signed the purchase agreement, they expressly declined to have a property inspection performed at their expense. At the closing the Russells reserved the right to seek a legal remedy for a previously undisclosed carpet stain.
Shortly after the Russells occupied the house, they discovered that the fireplace interior brick façade had pulled two inches away from the interior wall and that the bathroom door had a hole in it. About a year later, the kitchen sustained water damage from ice buildup on the roof. Water also pooled beneath a skylight on a wood floor that showed previous staining. When the Russells insulated the garage attic, they discovered rotted wood apparently caused by a leak from melting ice that had accumulated on the rafters. In a four-season-porch addition to the house, the Russells found a crack in the cement floor. None of these defects had been disclosed when the Russells viewed the house before closing.
The Russells filed a pro se action against the Carrolls for failure to disclose the fireplace defects, the carpet stain, the hole in the door, and the damage resulting from ice buildup. They also sued for failure to install footings under the four-season porch, which they alleged caused the crack in the cement floor. At a two-day trial, the Russells presented evidence of damages through the testimony of a licensed real-estate appraiser. Consistent with the complaint, the appraiser testified to a repair value for each defect. The Russells then attempted to introduce the appraiser's written report that incorporated estimated repair costs provided by nontestifying contractors. The district court excluded the report as inadmissible hearsay but allowed the appraiser to testify generally to the amounts attributable to the defects, including a "stigma" effect. The appraiser also testified at trial that the current fair market value of the property was $164,000 and acknowledged that the Russells had paid $164,000 for the property.
At the close of trial, the Carrolls moved to dismiss the claim for damages caused by the absence of footings. The Carrolls' attorney provided pictures of the footings, and the Russells admitted on the record that the four-season porch did have footings. The district court granted the motion. On the remaining claims, the district court concluded that the Carrolls had made fraudulent misrepresentations on which the Russells detrimentally relied, but the Russells had failed to prove any compensable damages.
The Russells moved for amended findings or a new trial. In the findings and order denying the motion, the district court emphasized that the measure of damages for fraudulent misrepresentation in the sale of real estate is the property's diminution in value or the amount paid less the fair market value of the property, not the cost of repair. The Russells appeal, contending that the district court (1) abused its discretion by dismissing that part of their claim alleging damages attributable to the absence of footings, and (2) legally erred by failing to use the costs of repair to determine damages.
DECISION
We review the denial of a motion for a new trial for violation of a clear legal right or abuse of discretion. LaValle v. Aqualand Pool Co., 257 N.W.2d 324, 328 (Minn. 1977). Whether a district court used a proper measure of damages is a question of law. Snyder v. City of Minneapolis, 441 N.W.2d 781, 789 (Minn. 1989). A district court's decision on a purely legal issue is independently reviewed. Frost-Benco Elec. Ass'n v. Minn. Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).
I
If the plaintiff fails to show a right to relief on the facts and the law, the defendant may move for dismissal at the close of the plaintiff's case. Minn. R. Civ. P. 41.02; see also Fidelity Bank Trust Co. v. Fitzimons, 261 N.W.2d 586, 587 n. 1 (Minn. 1977) (identifying proper motion at end of plaintiff's case as motion to dismiss under rule 41.02). If the court grants the motion to dismiss in a bench trial, it may make factual findings and order judgment on the merits. Id. at 588 n. 5. On appeal from an involuntary dismissal under rule 41.02(b), this court reverses only if the district court abused its discretion. Bonhiver v. Fugelso, Porter, Simich Whiteman, Inc., 355 N.W.2d 138, 144 (Minn. 1984).
The Russells challenge the district court's dismissal of the count in their complaint that alleges the absence of footings. They contend that their stated claim of "no footings down" reasonably implies a claim for defective footings as well as a claim for absence of footings. The primary function of notice pleading is to give the adverse party fair notice of the theory on which a claim is based. Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997). The Russells failed initially to assert a claim for defective footings and did not move to amend their complaint. During discovery, they continued to assert that no footings existed even after they received a copy of a building permit and photographs showing installation of footings. Only after trial began and the Carrolls' attorney presented a photograph of the footings to the court did the Russells admit that footings existed under the four-season porch. As the district court observed, "[n]onexistent footings and poor quality [footings] are two entirely separate and distinct issues that may not be easily substituted as a single claim against which [d]efendants must defend themselves." Under these circumstances, the district court did not abuse its discretion in dismissing the count alleging no footings, thereby precluding damages for the crack in the concrete caused by the alleged absence of footings.
The Russells failed to sustain their asserted theory of the case and did not move to amend. The district court acted well within its discretion by rejecting the Russells' midtrial attempt to seek general damages for foundational defects. We agree with the district court's reasoning that "allowing [the Russells] to alter their allegations at the time of trial, after more than two years of discovery, would unfairly imposition [the Carrolls] with the burden of defending themselves against any tenuously related claim for damage for which they were never properly noticed."
II
To prevail on a claim for false representation in the sale of real property in Minnesota, the claimant must show both false representation and resulting damages. Marion v. Miller, 237 Minn. 306, 309, 55 N.W.2d 52, 55 (1952). The appropriate measure of damages for false representation in the sale of real property is the amount paid less the fair market value. Peterson v. Johnston, 254 N.W.2d 360, 362 (Minn. 1997); Tysk v. Griggs, 253 Minn. 86, 95, 91 N.W.2d 127, 134 (1958). "Where fraud induced a purchase, the measure of damages is the difference in value between what was given and what was received. . . . Under this rule it is not a question of what the plaintiff might have gained through the transaction, but what he lost by reason of defendant's deception." Tysk, 253 Minn. at 95, 91 N.W. 2d at 134.
The Russells argue that the district court applied the incorrect legal standard for calculating damages when it failed to find that the Carrolls were obligated to pay them the appraiser's estimate of the amount of money required to repair the defects. We disagree. Repair costs alone do not suffice to show a claimant's damages for fraudulent misrepresentation in a real-estate transaction. See Lobe Enters. v. Dotsen, 360 N.W.2d 371, 373 (Minn.App. 1985) (holding that when plaintiffs offered no evidence to show value of property in condition received, repair costs did not accurately reflect loss arising from misrepresentation).
The district court correctly applied the law when it determined that the Russells' hybrid approach to measuring damages by calculating the amount paid less costs to repair the defects did not meet the requisite legal standard for proving damages for fraudulent misrepresentation of real estate. And the court did not err in rejecting the appraiser's estimate of a decrease in value for "stigma" attributable to the undisclosed defects existing in the property. An assertion of stigma without corresponding evidence of diminution in value is insufficient proof of damages. See Jackson v. Reiling, 311 Minn. 562, 563, 249 N.W.2d 896, 897 (1977) (explaining that plaintiff cannot recover damages that are merely speculative).
The Russells also claim that the district court erred in declining to admit evidence of the repair costs calculated by nontestifying contractors. We discern no abuse of discretion in this ruling. See Kroning v. State Farm Auto Ins. Co., 567 N.W.2d 42, 45-46 (Minn. 1997) (stating abuse-of-discretion standard of review for evidentiary rulings). The Russells contend that even though the estimates were hearsay, they should have been admitted as supporting documentation for the appraiser's expert testimony. See Minn. R. Evid. 801(c) (defining hearsay as out-of-court statement offered to prove truth of matter asserted); Minn. R. Evid. 703(a) (allowing admission of otherwise inadmissible evidence "of a type reasonably relied on by experts in the particular field in forming opinions or inferences upon the subject"). The Russells' expert was qualified as an expert in the field of appraisal, but not as a contractor who had first-hand knowledge of the cost of repair. The exclusion of evidence on the specific amounts for repair, however, was not significant, because the district court permitted the expert to testify generally to the total amount of the repair costs. But this argument misses the point. It is not the cost of repair but the effect on the value of the house that establishes the damages. Because of the uncontradicted evidence that the fair market value of the property at the time of trial was identical with the amount paid, the Russells did not establish that they were entitled to damages.
The district court based its determination that the Russells failed to establish compensable damages on the testimony of the Russells' expert appraiser who testified at trial that the current value of the property using the sales-comparison approach was $164,000. This is the amount the Russells paid for the house. The plaintiff has the burden of proving damages by a fair preponderance of the evidence. Pagett v. N. Elec. Supply Co., 283 Minn. 228, 236, 167 N.W.2d 58, 64 (1969). The evidence supports the district court's determination that the Russells failed to sustain their burden of proving a quantifiable diminution of value attributable to the misrepresentations, and we affirm.