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Frontier Dev. Group, LLC v. Caravella

Supreme Court of Idaho

August 28, 2014

FRONTIER DEVELOPMENT GROUP, LLC, MICHAEL HORN, Plaintiffs-Counterdefendants-Respondents,
v.
LOUIS CARAVELLA, PATRICIA CARAVELLA, Defendants-Counterclaimants-Appellants, and YELLOWSTONE DO IT CENTER, LLC, Plaintiff-Counterdefendant

2014 Opinion No. 92.

Page 1194

Appeal from the District Court of the Seventh Judicial District of the State of Idaho, Teton County. Hon. Gregory W. Moeller, District Judge.

The district court's judgment is affirmed in part, reversed in part, and the case is remanded for further proceedings.

Racine, Olson, Nye, Budge & Bailey, Chartered, Idaho Falls, for appellants. Brent Whiting argued.

Moore & Elia, LLP, Boise, for respondents. Michael J. Elia argued.

HORTON, Justice. Chief Justice BURDICK and Justices EISMANN, J. JONES and W. JONES, CONCUR.

OPINION

Page 1195

[157 Idaho 591] HORTON, Justice.

This case arises from the breach of a residential construction agreement. Homeowners Louis and Patricia Caravella appeal from the district court's judgment, following a court trial, dismissing their fraud counterclaim against respondents, Frontier Development Group, LLC (FDG) and Michael Horn, FDG's owner/manager. The Caravellas also appeal from the district court's decision that Horn was not personally liable for the award of damages and attorney fees entered against FDG. We affirm the district court's judgment in part, reverse in part, and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2006, Richard Myers owned the property at issue in this case. At the time, the property was subject to a deed of trust in favor of First Horizon Home Loans. Myers enlisted Horn and FDG to build a residence on the property, which First Horizon financed. However, in April of 2007, Myers filed for bankruptcy, and First Horizon rescinded the construction loan and instructed FDG to halt construction. When construction was stopped, the project was only fifty percent complete. Significant portions of the structure remained unfinished, including the roof, exposed door and window openings, and structural framing. The structure was left exposed to the elements for fourteen months.

While Horn was working for Myers, he submitted draw requests to First Horizon for payment for labor and materials. Horn's draw requests provided " all of the funds that are requested ... will be used to pay for the labor and materials which created the improvements to the subject property." Each draw request also provided that " the improvements completed to the subject property were completed as per the 'Plans and Specifications' originally submitted to the Lender, except for the 'Change Orders' listed below." Accompanying each draw request, Horn also delivered to First Horizon an affidavit which certified that all bills from the previous draw had been paid and that the funds sought were for additional work. After reviewing First Horizon's disbursement spreadsheet, the district court found that " Horn submitted numerous draw requests and was paid for construction labor and materials that were apparently never installed in the home or later found on the property

Page 1196

[157 Idaho 592] when it was purchased by the Caravellas." [1] The work performed by Horn for Myers had numerous substantial latent defects.

Following Myers' bankruptcy, foreclosure proceedings were initiated, and Myers hired Horn's wife, Kathleen Horn, of Windermere Real Estate/Teton Valley to list the property for sale. In March of 2008, the Caravellas, who were Ohio residents, became interested in purchasing or building a home in the Teton Valley area. The Caravellas' real estate agent, Mark Griese, put them in contact with Kathleen Horn who provided them with information on the dormant Myers project. Kathleen Horn eventually put the Caravellas in touch with Horn.

Beginning on March 17, 2008, the Caravellas and Michael Horn began to exchange emails about the property. Horn's email address during these communications was " builder@openrangehomes.com." By email, Horn informed the Caravellas that the property had been untouched for one year and that First Horizon would not sell the property for less than $800,000. The district court found the Caravellas to be credible when they testified that Horn repeatedly represented that the property was worth $1.2 million and that he was " the best builder" in the Teton Valley. Based on the information Horn provided to the Caravellas, they made an offer of $749,000 for the property. Myers, through Kathleen Horn, countered at $799,000. Less than two hours after the counteroffer was signed and delivered to the Caravellas, Horn recorded a mechanics lien for $23,000 on behalf of FDG against the property. The Caravellas accepted the counteroffer later that evening.

Horn formed FDG to operate his business as a general contractor. Horn registered an assumed business name, " Open Range Homes," for FDG with the Idaho Secretary of State. Horn's wife owns a small percentage of FDG, but she does not participate or have any duties in the operation of FDG. FDG is directed exclusively by Horn. FDG has never hired any employees. FDG did not own any assets at the time of trial. Horn takes all of FDG's profits as personal income, collecting the money in lump sums rather than receiving a specified compensation as a manager or employee of FDG.

In late April of 2008, the Caravellas traveled to the Teton Valley, met with Horn, and spent two days inspecting the property. During the inspection, Horn pointed out two potential problems with the house, a missing support and an inadequate structural beam. The Caravellas testified that Horn minimized issues with the house, telling them that it was " in good shape," " structurally sound," and a " great house." Despite the prospect of paying $799,000 for a partially completed house that had been exposed to the elements for fourteen months, the Caravellas chose not to have a professional inspection performed and closed on May 5, 2008.

After closing, the Caravellas and Horn agreed that Horn would complete construction on the house in accordance with Myers' original plans in discrete stages as funds became available. In reaching this agreement, the Caravellas testified that they believed they were dealing with Horn as an individual. The Caravellas and Horn agreed that the first phase of construction would be used to correct structural defects and to enclose the house to protect it from the elements. The total contract price for the first phase of work that the Caravellas authorized was $88,500. However, the Caravellas paid FDG $138,097.24 for the first phase before refusing to pay any more. Much of the money that the Caravellas paid to FDG was for unauthorized work or work that was completed in a nonconforming or substandard manner. The Caravellas hired a second builder, Jared Kay, to complete the first phase and to remedy the substandard work. In total, the Caravellas paid Kay $63,000.

FDG initiated this action on February 20, 2009, by filing a complaint to foreclose on a lien for construction services and building materials provided to, but not paid for by,

Page 1197

[157 Idaho 593] the Caravellas.[2] On April 6, 2009, the Caravellas answered, counterclaimed, and joined Horn as a co-counterdefendant. The Caravellas filed an amended counterclaim on October 19, 2009, alleging that FDG and Horn: (1) breached the parties' contract; (2) breached the duty of good faith and fair dealing; (3) violated the Idaho Consumer Protection Act; (4) breached the implied warranty of habitability; (5) committed slander of title; (6) committed fraud and misrepresentation; (7) engaged in a civil conspiracy; and (8) acted negligently. Horn and FDG answered the amended counterclaim on November 12, 2010. The matter proceeded to a court trial. At the conclusion of the trial, the district court ordered the parties to submit proposed findings of fact and conclusions of law and their closing arguments in writing.

On March 29, 2012, the district court issued its findings of fact and conclusions of law. The district court held that FDG's lien was defective and dismissed it. The district court also held that FDG breached its contract with the Caravellas by: (1) failing to complete agreed upon work in conformity with the plans and in a workmanlike manner; (2) charging the Caravellas for unauthorized and defective work; and (3) substantially overbilling the Caravellas for work and materials that were not authorized and never provided. The district court concluded that the breach of contract damaged the Caravellas in the amount of $114,028.04. As to the Caravellas' fraud counterclaim, the district court concluded that the Caravellas failed to establish all nine elements of fraud and dismissed the claim. The district court also concluded that Horn was not personally liable.

On October 31, 2012, the district court issued its memorandum decision regarding attorney fees, costs, and prejudgment interest and awarded the Caravellas $113,775.45 in attorney fees, $5,484.83 in costs as a matter of right, and $200.00 in discretionary costs. The district court issued its final judgment on October 31, 2012. The Caravellas timely appealed.

II. STANDARD OF REVIEW

We review a district court's bench trial decisions to determine " whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law." Independence Lead Mines v. Hecla Mining Co., 143 Idaho 22, 26, 137 P.3d 409, 413 (2006). This Court will set aside findings of fact only when clearly erroneous. Id. We will not disturb findings supported by substantial and competent evidence, " even if the evidence is conflicting." Id. " It is the province of the district court to weigh conflicting evidence and testimony and to judge the credibility of the witnesses." Thorn Springs Ranch, Inc. v. Smith, 137 Idaho 480, 484, 50 P.3d 975, 979 (2002). We, therefore, liberally construe a trial court's findings " in favor of the judgment entered." Id. (internal quotation marks omitted). When it ...

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