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The Oaks at Rivers Edge Property Owners Association, Inc. v. Daniel Island Riverside Developers, LLC

Court of Appeals of South Carolina

August 2, 2017

The Oaks at Rivers Edge Property Owners Association, Inc., John E. Atkinson, Joan D. Strandquist, Joseph E. Chiovarou, Jr., Peyton H. Cook, Jr., Brenda Cook, John W. Edelen, Karen A. Nelson, Robert J. Graham, Maureen S. Graham, Nancy K. Johnson as trustee for the Nancy K. Johnson Revocable Trust, William Jung, Charles Maraziti, Patricia Maraziti, George S. Pollard, Eleanor J. Pollard, Robert Reece, Gerard M. Ruvo and Sue S. Ruvo as trustees for the Ruvo 2006 Living Trust, Carolyn M. Jennings, Thomas Edward Keane, Edward Wallace Barr, III, Richard B. Pekruhn, Pauline Pekruhn, Matthew J. Severance, and Elizabeth Ashley Phillips Severance, Respondents,
v.
Daniel Island Riverside Developers, LLC and Carriage Hill Associates of Charleston, LLC, Appellants. Appellate Case No. 2014-002390

          Heard November 17, 2016

         Appeal From Berkeley County J. C. Nicholson, Jr., Circuit Court Judge.

          Charles S. Altman and Meredith L. Coker, both of Altman & Coker, LLC, and Roy Pearce Maybank and Amanda R. Maybank, both of Maybank Law Firm, LLC, all of Charleston, for Appellants.

          Michael Brent McDonald and Walter Henry Bundy, Jr., both of Bundy McDonald, LLC, of Summerville, for Respondents.

          KONDUROS, J.

         In this case regarding defective construction, Daniel Island Riverside Developers, LLC (DIRD) and Carriage Hill Associates of Charleston, LLC (CHAC) (collectively, Appellants) contest on appeal the trial court's award of damages to Respondents, arguing the court should have offset the damages with the amount Respondents previously received through settlement. Further, Appellants contend the trial court should have allocated the damages among the various defendants and erred by entering an order prior to Respondents' election of remedies. Finally, Appellants assert the damages were excessive, speculative, and not supported by the evidence and constituted a double recovery. We affirm.

         FACTS/PROCEDURAL HISTORY

         The Oaks at Rivers Edge Horizontal Property Regime (The Oaks) is located on Daniel Island and comprised of six buildings, with six condominium units in each building. The Oaks was constructed over a period from 2003 through 2006. DIRD was the developer of the Project. DIRD contracted with CHAC to be the construction manager for the Project. DIRD sold the units for an average of $650, 000, although many unit owners paid substantially more for their units as they purchased their units or contracts from intermediate third parties.[1] DIRD appointed board members to the board of the Oaks at Rivers Edge Property Owners Association (the POA) until control of the POA was turned over to the unit owners on or after December 7, 2006.

         Before purchasing their units, prospective purchasers received brochures marketing the condominiums. These marketing documents advertised an "incredible array of standard luxuries." The luxuries included things like oak flooring, soundproofing between all units, and an exterior brick-and-stucco façade. However, numerous issues later arose with the condominiums. The units were not soundproof. The units had numerous leaks caused by air-conditioning units, plumbing, and faultily installed windows and doors. The leaks within the walls resulted in the growth of mold in the units. The hardwood floors also warped and separated in multiple places in the units.

         Multiple lawsuits arose from the project. As part of the litigation, in February 2011, the POA obtained an estimate from Southeastern Construction for $11, 807, 884 to repair the six buildings. Prior to the scheduled date of trial, several settlements occurred among the various parties. The total settlement amount paid to the POA was $7, 702, 552. Of that amount, $3, 700, 000 was paid by CHAC; DIRD; Carriage Hill Associates, Inc. (CHANY)[2]; the architects on the project, Gerald Rumplick and Edward D'Orazio; and Richard Behringer. The other $4, 002, 552 was paid by Weather Shield; The Muhler Company, Inc.; A.C. Construction, Inc.; and Coastal Caulking.

         The Memorandum of Settlement stated, "Whether or not CHAC and DIRD will receive credit on the judgment for amount paid by CHANY, Architects and Richard Behringer in his individual capacity, or any amount paid by other defendants in settlement will be determined by the court consistent with South Carolina law." The POA and individual unit owners (Unit Owners) (collectively, Respondents) agreed to "dismiss with prejudice claims against [Appellants] only for UTPA, piercing, fraud, individual liability, amalgamation, aiding and abetting, aiding and abetting breach of fiduciary duty, and breach of contract accompanied by a fraudulent act." It further specified, "The remaining claims against [Appellants] only, are breach of fiduciary duty, negligent misrepresentation, negligence, breach of express and implied warranties, including, but not limited to, habitability, fitness for a particular purpose, and workmanlike service, and breach of contract." They also agreed "not to seek punitive damages or attorneys' fees arising out of any cause of action, against [Appellants], only." Appellants were among the signors.

         The settlement agreement and release specified "this Agreement is only a Partial Release by the POA as to [Appellants]." It stated "the POA's release by and of [Appellants] is limited to the terms of the Memorandum of Settlement and does not in any way apply to the claims currently pending before the [trial court]." For $3.7 million, the POA discharged Appellants "consistent with the terms of the Memorandum of Settlement and specifically reserving all claims pending at the time of this Agreement before the [trial court]." For $4, 002, 552, the POA released Weather Shield, Muhler, A.C., and Coastal Caulking for all damages resulting from the design, manufacture, sale, and installation of the windows, window units, exterior doors, exterior door units, railings, balustrades, framing, and caulking. Appellants signed the agreement.

         At the bench trial, several Unit Owners testified about the problems they experienced with their units, including sound transmission between the units, mold problems, and hardwood flooring separating. Appellants and Respondents then stipulated the remaining homeowners would testify to having the same sound problems with their units. Several Unit Owners also testified about their inability to sell their units. Others indicated the people renting their units had moved out because of mold, the lack of soundproofing, and other safety concerns. Owners who were able to sell the units testified as to the amount of loss they sustained. For example, Robert Reece testified that after buying his unit for $716, 850, it appraised at $940, 000, but it sold for only $377, 000.[3]

         Both sides presented expert testimony about what needed to be done to correct the problems with the buildings. Dr. Noral Stewart testified on behalf of Appellants as to what had already been done to remedy the sound problems. Mike Parker also testified as an expert for Appellants about the leaks. Respondents presented the expert testimonies of Theodore Padgett, who described what he believed needed to be repaired in the buildings, and David Willis, who testified as to the costs of those repairs.

         The trial court found Appellants jointly and severally liable for negligence, gross negligence, and negligent misrepresentation. It also found DIRD liable to the POA for breach of fiduciary duty. It found DIRD liable to the Unit Owners for breach of implied warranty of habitability. It additionally found CHAC liable to the POA and Unit Owners for breach of implied warranty of workmanlike service.

         The trial court awarded the POA $7, 934, 704.06 from Appellants for the cost of repair, $793, 470.41 for engineering fees at 10% of cost to repair, and $641, 520 for moving, storage, and replacement lodging. It also determined DIRD was liable for an additional $19, 440 for the failure to fund the reserves as promised. It awarded individual Unit Owners differing amounts of damages specific to them. These damages included loss of market access, lost rent, inconvenience, out of pocket costs, and costs due to defective floors. Several of these Unit Owners had to elect between damages for loss of market access or loss of rent. One Unit Owner had to elect between damages from inability to refinance or loss of market access.

         Appellants moved for allocation of damages and setoff, contending they were entitled to a setoff equaling the total amount of the settlement. Appellants also moved for judgment notwithstanding the verdict (JNOV), new trial absolute, new trial nisi remittitur, to alter or amend judgment, and relief from the order, arguing the damages award was not supported by the evidence, was speculative, and constituted a double recovery. Following a hearing and further memorandum, the trial court denied all of Appellants' motions. This appeal followed.

         LAW/ANALYSIS

         I. Setoff

         Appellants argue the trial court erred in failing to setoff the damages it awarded by the amount previously received by Respondents from the settling defendants prior to trial, asserting the evidence presented at trial established the damages were for items that were the responsibility of the settling defendants, thereby resulting in a double recovery to the Respondents. We disagree.

A nonsettling defendant is entitled to credit for the amount paid by another defendant who settles. The reason for allowing such a credit is to prevent an injured person from obtaining a second recovery of that part of the amount of damages sustained which has already been paid to him. In other words, there can be only one satisfaction for an injury or wrong. However, the reduction in the judgment must be from a settlement for the same cause of action.

Welch v. Epstein, 342 S.C. 279, 312-13, 536 S.E.2d 408, 425 (Ct. App. 2000) (citations omitted); see also Rutland v. S.C. Dep't of Transp., 400 S.C. 209, 216, 734 S.E.2d 142, 145 (2012) ("A non[]settling defendant is entitled to credit for the amount paid by another defendant who settles for the same cause of action.").

A settlement by a joint tortfeasor "reduces the claim against the others to the extent of any amount stipulated by the release or the covenant." Therefore, before entering judgment on a jury verdict, the court must reduce the amount of the verdict to account for any funds previously paid by a settling defendant, so long as the settlement funds were paid to compensate the same plaintiff on a claim for the same injury.

Smith v. Widener, 397 S.C. 468, 471-72, 724 S.E.2d 188, 190 (Ct. App. 2012) (quoting S.C. Code Ann. § 15-38-50(1) (2005)).

The trial court's jurisdiction to set off one judgment against another is equitable in nature and should be exercised when necessary to provide justice between the parties. A set[]off is not necessarily founded upon any statute or fixed rule of court, but grows out of the inherent equitable jurisdiction of the court. Therefore, such motions are addressed to the discretion of the court-a discretion which should not be arbitrarily or capriciously exercised.

Welch, 342 S.C. at 313, 536 S.E.2d at 425-26.

The right to setoff has existed at common law in South Carolina for over 100 years. Allowing setoff "prevents an injured person from obtaining a double recovery for the damage he sustained, for it is almost universally held that there can be only one satisfaction for an injury or wrong."

Riley v. Ford Motor Co., 414 S.C. 185, 195, 777 S.E.2d 824, 830 (2015) (citation omitted) (quoting Rutland, 400 S.C. at 216, 734 S.E.2d at 145). "In 1988, these equitable principles were codified as part of the South Carolina Contribution Among Tortfeasors Act (the Act), [sections] 15-38-10 to -70 [of the South Carolina Code] (2005 & Supp. 2014)." Riley, 414 S.C. at 195, 777 S.E.2d at 830. "[T]he Act represents the Legislature's determination of the proper balance between preventing double-recovery and South Carolina's 'strong public policy favoring the settlement of disputes.'" Id. at 196, 777 S.E.2d at 830 (quoting Chester v. S.C. Dep't of Pub. Safety, 388 S.C. 343, 698 S.E.2d 559 (2010)).

         Section 15-38-50 provides:

When a release or a covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same ...

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