A number of defects discovered after a woman moved into her North Carolina home led to a lawsuit against the previous owners, the real estate agents and the home inspection company. A trial court dismissed an unfair trade practices claim and awarded attorney fees to the defendants, but what made an appellate court question the ruling? Read on.
After a California woman moved across the country to North Carolina, she found structural problems and other defects in the home she purchased, and claimed the real estate agents, sellers and inspectors should have noticed and disclosed the issues. A trial court was not convinced, but on appeal the buyer was able to claim a small victory. On April 1, when the Court of Appeals of North Carolina affirmed the lower court’s ruling, but remanded an award of attorney fees.
Plaintiff Sandra Birmingham decided in 2005 to move from California to North Carolina, and she retained real estate agent T. Edwards to help her look for a house in Hickory, N.C. Edwards showed Birmingham a house owned by Daniel and Katherine Barnes in June 2005, and Birmingham signed a purchase contract on June 23, 2005. The Barneses accepted the offer the next day.
Birmingham had received a copy of the state’s Residential Property Disclosure Statement which the Barneses had signed in April 2005. The Barneses were asked to disclose any problems or issues with the property, and checked “no” for every question with the exception of one which concerned homeowners’ expenses or assessments. The Barneses noted that they paid an annual $40 homeowners’ association fee each year.
Discovery of defects
Prior to the closing, Birmingham hired H & H Home Consultants and Design Inc. to inspect the property. She received a report following the inspection. After signing the purchase offer, Birmingham returned to California and didn’t go back to North Carolina until after the property closed. After Birmingham moved in, she noticed “problems” with the house that allegedly weren’t disclosed on the disclosure form or in H & H’s report.
After notifying the Barneses of the problems, only limited repairs were made, Birmingham claimed. Birmingham sued on Sept. 13, 2006, accusing the Barneses, H & H and Edwards of breach of contract; claiming fraudulent and negligent misrepresentation against the Barneses, H & H and their own real estate agent representative, Joan K. Everett & Company; and accused all parties of unfair and deceptive trade practices.
The complaint claimed that the bricks on the front porch of the home were separating and falling away from the porch, there were broken windows and structural problems with the greenhouse, the pool liner had separated from the edges of the pool, and other issues. Birmingham claimed several of the alleged defects should have been noticed and either included in the inspection report or disclosed on the disclosure form.
The Barneses pled affirmative defenses and filed counterclaims against Edwards and Everett, and filed a motion for partial summary judgment on the unfair and deceptive trade practices claim. The Catawba County Superior Court on Dec. 19, 2006 granted the partial summary judgment in the Barneses’ favor, dismissing the unfair and deceptive trade practices claim. The court also awarded attorney fees to the Barneses. Birmingham appealed.
Birmingham argued that the trial court applied the improper legal standard when it granted the defendants’ motion for partial summary judgment, and that the court didn’t take into consideration all of the evidence in the light most favorable to the non-moving party.
At the hearing on the partial summary judgment motion, Birmingham submitted affidavits that revealed “contradictory evidence,” the buyer claimed, but the court granted the defendants’ motion based only upon her complaint and not on any evidence she presented.
Residence or business establishment?
One of Birmingham’s affidavits was a statement alleging that the Barneses’ house included an office, and as such the property was sold in commerce, and the sellers engaged in a commercial land transaction, and thus participated in an unfair or deceptive trade practice. The Barneses contended that the home was their personal residence and that they had never been in the business of selling real property.
The trial court appeared to be convinced that the property was sold only as a personal residence, the appellate court said.
“Nowhere is it alleged that the defendants Daniel and Katherine Barnes were anything other than private individuals selling their own residence,” the trial court stated. “There is no allegation they were acting as an agency, enterprise, business or a commercial or industrial establishment. There is not even a hint of the same.”
The appellate court said this sufficiently showed that the trial court considered both the complaint and the record when it made its ruling on the partial summary judgment motion.
Wrong standard was applied
Birmingham also took exception to the trial court’s award of attorney fees to the defendants. The appellate court examined the language of a state statute which outlines the standards under which a court may award attorney fees to an opposing side, depending on which party prevailed. In an unfair and deceptive practices claim, the party which prevails may recover attorney fees if there was an “unwarranted refusal to settle,” but, the appellate court noted, the trial court improperly relied on a particular standard of the statute in the Barneses’ case.
“The trial court’s order finds ‘an unwarranted refusal’ to fully resolve a case, a standard which applies only to cases falling under N.C. Gen. Stat. § 75-16.1(1). Therefore, the trial court erred in using the incorrect standard in its order awarding attorney’s fees to the Barnes defendants,” the appellate court said.
Under N.C. Gen. Stat. § 75-16.1(2), the standard for awarding attorney fees is when the plaintiff knew or should have known that a claim was frivolous and malicious, the appellate court explained.
“As the trial court instead applied the lower standard of an ‘unwarranted refusal’ to resolve the case, we cannot determine if the trial court would have awarded attorney’s fees if it had applied the correct standard of a knowing or reckless ‘frivolous and malicious’ institution,” of the claim against the Barneses, the appellate court said.
The appellate court therefore remanded the attorney fee award to the trial court for additional findings of fact and conclusions of law.
Sandra Birmingham v. H & H Home Consultants and Designs Inc., Ron Herman, Joan K. Everett & Company, T. Edwards, Daniel G. Barnes & Katherine W. Barnes.