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Fraud Just Got More Expensive - Equity as a Factor in Attorney Fee Awards

Published on: November 15, 2013

The Louisiana Supreme Court recently held that the New Home Warranty Act ("NHWA") is not the exclusive remedy for a purchaser of a new home where the builder fails to disclose known defects in the Residential Property Disclosure Act ("RPDA"). Stutts v. Melton, 2013-0557, -- So.2d. ----. The Court also upheld an award of damages and attorney fees for fraud victims who elect not to seek rescission of a sales contract despite no Civil Code article expressly allowing for attorney fees in such instances.

Builder Chad Melton completed a home in Walker, Louisiana in 2004. He and his wife lived in the home for approximately nine months prior to selling the home to James and Lisa Stutts. The Residential Property Disclosure Act, La. R.S. 9:3196, et seq., requires disclosures of known problems with a home prior to sale. Melton provided the Stutts with a disclosure form, but failed to mention that color had previously been observed bleeding onto the walls of the home from the roof.

In Stutts, it was factually established that Melton was aware of the roof defect because he had entered into a $13,600 settlement with the roof manufacturer to fund the replacement of the roof. Nevertheless, Melton cleaned the walls and installed gutters instead of the more expensive roof replacement.

Melton's gutter solution was ill-advised and unsuccessful. After discovering the problem in the summer of 2006, the Stutts filed suit seeking as damages: the repair costs for the roof; costs for additional repairs; and attorney fees.

The Stutts filed a motion for summary judgment on their fraud claim citing La. C.C. art. 1953. The Meltons opposed the motion, arguing that the NHWA provides the "exclusive remedy" available to the Stutts. The motion was granted and, after a bench trial on damages, the trial judge awarded damages to include attorney fees.

The court of appeal reversed both the summary judgment and the money judgment, holding that the Stutts' claims were untimely under the NHWA.The NHWA provides a one year warranty period for new home construction and an additional thirty day period in which to file suit under the Act. By its terms, the NHWA provides the "exclusive remedies" between a builder and an owner relative to home construction.

The Louisiana Supreme Court reversed and reinstated that lower court's judgment. The Court held that the RPDA applied in this case because the home had been occupied by the Meltons after construction was completed. Even though the NHWA claims were prescribed, the Stutts possessed a timely claim that Melton had provided a fraudulent disclosure in violation of the RPDA.

The Court next addressed the Stutts' claim for attorney fees. The Court observed that no statute specifically authorized attorney fees where the plaintiff does not seek rescission of the sale. However, the Court reasoned, citing principles of equity found in Louisiana Civil Code article 4, that the legislature surely did not intend for victims of fraud to go uncompensated if they elect not to seek full rescission of the sale. Accordingly, attorney fees were held appropriate where fraud is committed but the victim elects not to seek rescission of the contract.

The Court's holding in Stutts may have a limited impact on the NHWA because of the peculiar facts of the case, i.e. the builder of the new construction living in the completed home before selling it to plaintiffs. However, the Court's award of attorney fees is an interesting development in the law. Time will tell whether the Court may be inclined to create further exceptions to the established rule that attorney fees cannot be awarded in the absence of statutory or contractual language awarding attorney fees.

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Workers' Comp: "Failure to Answer" Results in Forfeiture of Benefits

A worker’s benefits may be forfeited if the employee is untruthful on a medical questionnaire (if the misrepresentations directly relate to the alleged injury) or prejudices the employer’s ability to recovery from the “Louisiana Second Injury Fund.” La. R.S. 23:1208.1 Some Louisiana courts have shown reluctance to deny workers’ compensation benefits based on the employee’s alleged failure to truthfully answer a medical history questionnaire. However, the court in Spillman v. Career Adventures, Inc., --- So.3d ---- 2021 (La. App. 2d Cir. 8/11/21), 2021 WL 3523959, held that benefits were forfeited because the claimant provided false responses to several medical history questions and failed to answer a number of specific questions on a post-hire medical history questionnaire provided by his employer.

At trial, it was established that Spillman had pre-incident medical conditions to include: 1) injuries related to a 2007 work-related accident; 2) regional sympathetic dystrophy of the left foot; 3) COPD; 4) chronic pain from a gunshot wound in his left leg; 5) surgery to the AC joint of his right shoulder; 6) injuries from a 2018 motor vehicle accident to the right shoulder and right knee; 7) anxiety; 8) bipolar disorder; and 9) many other ailments.

Like many other employers, Spillman’s employer Career Adventures included with its employment packet a “Office of Workers’ Compensation Second Injury Board Questionnaire.” Spillman failed to truthfully complete this questionnaire and checked “no” to specific questions which asked if he had experienced many of his known conditions such as COPD and bipolar disorder. Although Spillman took the time to respond to numerous “fill in the blank” questions, he purposefully skipped at least 10 inquiries.

Eleven months after hire, Spillman alleged he was injured at work while performing his duties as a welder. At trial, Spillman’s family physician identified a torn tendon in the left elbow as a work-related injury. He further testified that the tendon injury limited his activities and merged with his pre-existing injuries to create a greater total disability. The workers’ compensation judge (“WCJ”) ruled that Spillman violated La. 23:1208.1 by failing to truthfully answer certain questions. The Second Circuit “went further” in affirming the workers’ compensation judge, stating:

“We go further than the WCJ. All information which would have been disclosed had Mr. Spillman truthfully answered each and every question on the preemployment questionnaire must be considered …”

Therefore, the appellate court in Spillman found that both false answers and a failure to answer certain questions can qualify as a willful misrepresentation sufficient to cause a forfeiture of benefits under La. R.S. 23:1208.1 under certain circumstances.

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Did You Just Create a Contract?

You tell a contractor you want him to repair a problem. Before leaving your house, the contractor says he will “look into it” and “get back to you.” Have you just made an oral contract for the repair? The answer to this question is no, according to Hodson v. Daron Cavaness Builder, Inc., 2017-1235 (La. App. 1 Cir. 2/27/18), a recent First Circuit Decision.

In Louisiana, an oral contract for over $500 must be proved by at least one witness and other corroborating circumstances. See La. C.C. art. 1846. The person trying to enforce the oral contract may serve as her own witness to meet this standard, but evidence of the corroborating circumstances must come from some other source. In Hodson, the plaintiff observed cracks in her floor and called a contractor to examine the problem. The plaintiff made it clear she wanted the contractor to repair the floor. While the contractor denied promising to fix the floor, he admitted that he promised to “look into it and get back with her in a week or two.” Despite his promise, he never called the homeowner back.

The plaintiff filed suit and claimed she was entitled to recover damages for the cost of repairing her floor. The Trial Court found the contractor’s admissions to be enough “corroborating evidence” to establish an oral contract for the repair. However, the First Circuit found the parties did not make an oral contract to repair the floor. Instead, the contractor only agreed to “look into it.” According to the Hodson Court, a “broken promise to look into a situation does not equate to an oral agreement to repair.”

The Hodson decision shows that while Louisiana law allows parties to create oral contracts, it can be difficult to prove that a contract was actually formed or to define the details of the agreement. If you put the agreement in writing, you won’t be left wondering whether you just created a contract.

Reynolds LeBlanc is a partner at Keogh Cox. His practice areas include commercial litigation, personal injury claims, appeals, and other matters. Reynolds is a former teacher, who in his free time plays music and perpetually talks himself into training for his next marathon.

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COVID-19 Case Presents Interesting Constitutional and Procedural Issues

COVID-19 stretched our legal system and raised questions not easily answered by existing law. One recent question surrounds a dispute between the Governor and the State Legislature regarding the constitutionality of the Governor’s proclamation of a public health emergency in response to COVID-19. Recently, in Governor John Bel Edwards v. Louisiana State Legislature, Louisiana House of Representatives, & Clay Schexnayder, in his official capacity as Speaker of the House of Representatives, 2020-CA-1407, the Louisiana Supreme Court was asked to gauge the validity of the legislature’s termination of Governor Edwards’ proclamation. However, the Court did not reach the constitutional questions and remanded the case.

The Governor filed suit to challenge the Legislature’s termination of his COVID-19 proclamation. He argued that the termination was null and void citing both constitutional and non-constitutional grounds. Because the trial court found the termination unconstitutional, it did not address the procedural and non-constitutional challenges raised.

On appeal, the Supreme Court held that the trial court erred in reaching the issue of constitutionality prior to determining whether the dispute could be resolved on non-constitutional grounds. Louisiana law dictates that courts should avoid decisions based upon constitutional grounds unless the constitutional issue is essential to resolution of the case. Although the issues to be addressed were important to the citizens of Louisiana, the Court stated “it is critical a case must reach this court in the proper procedural posture to warrant our review of a ruling on constitutionality.”

The case highlights the role of the Louisiana Supreme Court and reminds both attorneys and the public of how issues are addressed and decided. The Court was express that the issues presented in Edwards were novel and important and may ultimately be issues the high court will choose to address. However, the Court recognized that its powers of constitutional review are constrained by procedure. A civics lesson in the midst of the COVID-19 pandemic.

Virginia “Jenny” McLin is a partner at Keogh Cox who practices in the fields of corporate litigation, insurance defense and workers compensation defense. When she is not practicing law, Jenny can be found volunteering with the Junior League of Baton Rouge; cheering for the LSU Tigers with her husband Ryan; or shuffling her two kids to and from dance practice.