Saturday, November 7, 2015

Fault for Fire?

Terry v. O’Brien, 2015 VT 119

By Andrew Delaney

Back in the days of big hair and bad metal, the O’Briens bought a property in the Old North End of Burlington. The property included a two-story house and a brick building (“the creamery”) with a common wall. The creamery doesn’t have fixtures and has never been lived in. The O’Briens lived in the house for a year; then families in a refugee-resettlement program occupied the space for several years; then some family members lived there.

And then the plaintiffs moved in. The Terrys house was being foreclosed on, and the O’Briens let them move in and stay rent-free “for the time being.” Mr. O’Brien was an attorney and had represented members of the Terry family, including in the foreclosure proceedings, over the past fifteen years. After the first year in the property, the Terrys started paying monthly rent in an amount that varied over the years. Eventually, the relationship deteriorated due to the O’Briens’ unhappiness about the Terrys’ late or nonpayment of rent.

From 2005 to 2008, there were some code inspections, some violation citings, and some repairs. In November 2008, the O’Briens replaced the furnace with a big ol’ space heater on the first floor, but apparently it didn’t get enough heat to the second floor. So, the Terrys started using electric space heaters on the second floor at night.

In December 2008, there was a fire. The Terrys weren’t home and weren’t injured, but they did have to find a new place to live. The fire investigator determined that the “fire had begun at an electrical splice located in the attic. The splice connected the house’s original knob-and-tube wiring to more modern Romex wiring and was buried in cellulose insulation.” The fire investigator noted that there was a heavy load on the system due to multiple extension cords and supplemental wiring. He concluded that a combination of the load, moisture from the insulation, and lack of escape for heat because of the insulation caused the fire.

Just under three years later, the Terrys, their children, and a grandchild filed suit against the O’Briens for: (1) breach of the oral rental agreement; (2) breach of the warranty of habitability; (3) breach of the covenant of quiet enjoyment; (4) violation of the Consumer Protection Act (CPA); (5) negligence; and (6) negligent infliction of emotional distress. Among other things, the Terrys asked for “compensatory, consequential, punitive, and exemplary damages, as well as attorney’s fees.”

There was a week-long jury trial. At the close of the Terrys’ case, the trial court concluded that the Terrys weren’t entitled to economic damages, but that the husband and wife—but not the other plaintiffs—had presented enough evidence to allow the jury to consider emotional damages from the fire. The trial court combined a couple counts and dismissed a couple other counts.

In the end, the trial court gave the jury instructions on four of the Terrys’ claims: (1) breach of the warranty of habitability; (2) violating the CPA by renting a non-code-compliant residence; (3) negligence; and (4) negligent infliction of emotional distress. The court also told the jury that it’d determined as a matter of law that the Terrys’ damages “were restricted primarily to emotional suffering and other intangible injuries.” The trial court also told the jury that the O’Briens alleged contributory negligence and sought past rent.

The court gave the jury special interrogatories (a very lawyerly way to say “questions”) to answer in reaching a verdict. The jury concluded that:

  • The O’Briens breached the warranty of habitability by renting tenants an unsafe or non-code-compliant residence
  • The breach was a proximate cause of the intangible harms the Terrys claimed they suffered
  • The O’Briens did not act negligently 
  • The O’Briens violated the CPA by renting the Terrys an unsafe or non-code-compliant rental unit
  • The O’Briens’ violation of the CPA was a proximate cause of the intangible harms the Terrys claimed they suffered
  • The O’Briens did not cause the Terrys to experience emotional distress by negligently exposing them to a risk of harm
  • The Terrys’ negligence was a proximate cause of the fire, and their respective negligence as compared to that of the O’Briens’ was thirty percent of the fault (if you’re scratching your head right now, you’re not alone)
  • For emotional damages, Penny Terry was entitled to $30,000 and her husband $10,000, to be reduced by the percentage of negligence assigned to them
  • The Terrys were not entitled to recover any compensatory or exemplary damages afor the CPA violation . . . and
  • The Terrys owed the O’Briens $20,000 in unpaid rent
The trial court entered judgments accordingly ($21K to Penny Terry; $7K to Timothy Terry, but both liable for the $20K owed to the O’Briens in back rent). There were competing post-judgment motions, which with denial of the O’Briens’ and granting of the Terrys’ resulted in a roughly $57.7 costs-and-fees award to the Terrys (reduced from the $133.6K requested), and a takesies-backsies on the O’Briens’ past-rent claim. The trial court reasoned that the jury’s verdict could be read to say that the residence wasn’t habitable during the unpaid-rent period.

The O’Briens appeal, arguing that: the trial court screwed up the CPA and habitability instructions and that prejudiced them; the trial court shouldn’t have taken away the unpaid rent award; and the trial court abused its discretion when it gave the Terrys attorney’s fees but not them.

The SCOV begins with the warranty-of-habitability jury instruction. The O’Briens maintain that the statute requires notice of a defect and a failure to fix it. They’re right. The trial court, however, went a little further with the instructions—instructing the jury that the statute required strict compliance with applicable codes and as far as the knob-and-tube-to-Romex splice went, all the Terrys needed to prove was that the defect existed and it wasn’t up to code. That’s not cool, says the SCOV. Jury instructions need to show “the true spirit and doctrine of the law.” This one doesn’t because having notice of a defect from somewhere and an opportunity to correct it is pretty important.

Nobody has argued and the record evidence fails to show that the O’Briens had notice of the defect. Under these circumstances, the SCOV concludes that the statutory claim for breach of the warranty of habitability fails as a matter of law.

The O’Briens also make an argument that the habitability instruction mish-mashed tort and contract law, but that doesn’t get very far. The SCOV concludes that the objection wasn’t properly preserved, and that’s the end of that. Let’s just leave it at preserving objections for appeal is hard and is (in my cynical opinion) only properly done when the objection has been repeated ad nauseam.

The SCOV turns to the CPA instruction next. Essentially, the trial court’s instruction—and I’m liberally and perhaps unfairly paraphrasing here—was that renting a non-code-compliant residence violates the CPA. The O’Briens say that was prejudicial because they had to have notice of the noncompliance so they could fix it.

The SCOV agrees with the O’Briens. The SCOV first notes that a CPA claim requires a representation or omission likely to mislead a consumer; that the consumer’s interpretation be reasonable; and that the representation or omission be likely to influence the consumer’s conduct or decision.

In general, the SCOV notes, there needs to be some knowledge (or an active attempt to avoid knowledge) on the defendant’s part. Here, the trial court’s instruction was that renting a non-code-compliant residence is a violation of the CPA. That’s way too broad. The SCOV reasons that if the law were that way, “given the detailed specifications of housing codes and regulations” pretty much every single residential-rental agreement made in this state would in some way violate the CPA.

So there has to be an act or omission that’s likely to mislead a reasonable consumer for the CPA to apply. The instruction didn’t even mention that requirement. The instruction was “also too broad in the sense that it effectively imposed liability on landlords for their failure to disclose code violations, without regard to whether they had any knowledge of the alleged violations.”

The SCOV holds that “in cases where tenants are basing a CPA claim upon the failure of landlords to disclose code violations related to the habitability of residential premises, the tenants must show that the landlords knew or should have known of the alleged defect in the premises.” The SCOV is clear that landlords can still be held liable for defects they should’ve known about.

Because the SCOV cannot conclude as a matter of law whether the O’Briens knew or should’ve known about the electrical splice that led to the fire, the SCOV remands the CPA claim for retrial.

The O’Briens’ verdict for unpaid rent gets reinstated because the SCOV vacates the habitability judgment. Make sense? Without a violation of the warranty of habitability, there’s no basis for the Terrys to withhold rent.

On attorney’s fees, because of the reversal of the other judgments, the SCOV vacates the attorney’s fee award to the Terrys. Regarding the O’Briens’ the-trial-court-couldn’t-award-attorney’s-fees-to-the-Terrys-because-the-jury-didn’t-award-CPA-damages, the SCOV disagrees. The SCOV notes that the same damages were sought for both the habitability and the CPA claims, so the jury’s decision not to award damages on the CPA claim but on the habitability claim despite a finding of violation of both was probably the jury’s attempt to avoid awarding the same damages on different counts—just like the jury was instructed.

On the trial court’s denial of attorney’s fees for the O’Briens, the SCOV affirms. The O’Briens argue that a statutory right to attorney’s fees exists when tenants cause damage to a property and that the Terrys use of space heaters and extension cords contributed to the fire happening. The trial court reasoned that though the Terrys may have contributed, the primary cause of the fire was the electrical splice, and there was no evidence that the Terrys’ use of cords and heaters violated codes or regulations. The SCOV agrees with this reasoning and affirms the trial court’s denial of the O’Briens’ attorney’s fees.

And so, we’re back to square one, sort of. This goes back for a new trial on the CPA claim, and the issues have been whittled down a bit.

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