Terry A. young and Lynn Y. Young v. Vista Homes, Inc., et al.

These are consolidated appeals and cross-appeals
from separate judgments of the Hardin Circuit Court confirming
jury verdicts in two related trials. In all of these cases, the
homeowners entered into contracts for the construction and
purchase of purported four bedroom homes. However, the septic
systems for these houses only met the building code standards
for three bedroom homes. For the most part, we find no
reversible error on any of the issues raised in these appeals
and cross-appeals. However, we conclude that the homeowners
failed to present evidence of intentional fraud warranting the
awards of punitive damages. Furthermore, we find that the trial
court's award of attorney fees after the second trial failed to
fully compensate those homeowners for the attorney fees and
costs to which they are entitled by statute. Hence, we affirm
in part, reverse in part, and remand for entry of a new
judgment.

FACTS

James Bramblett is the president, and sole officer and
stockholder of Re/Max Executive Group, Inc. (Re/Max), a real
estate brokerage company located in Elizabethtown, Hardin
County, Kentucky. James Bramblett is also a stockholder and
president of Vista Homes, Inc., also located in Elizabethtown,
Kentucky. James's father, Fred Bramblett, is the other
stockholder and vice-president of Vista Homes. Vista Homes is
engaged in the construction and sale of homes. Among its other
endeavors, Vista Homes is the developer and primary builder in
the LaVista subdivision, which is located near Rineyville in
Hardin County.

Terry and Lynn Young (the Youngs), Bernard and
Danielle Prevost (the Prevosts), Randall and Laura Roller (the
Rollers), Willard and Michaela Suther (the Suthers), and Dean
and Katy Moreland (the Morelands) each contracted with Vista
Homes for the construction and purchase of homes in the LaVista
subdivision. All of the homes are based on the same design.
They also signed contracts with Re/Max to serve as listing agent
for the transactions. All of these buyers allege that Vista
Homes and Re/Max represented the homes as having four bedrooms.
Vista Homes characterizes the homes as having three bedrooms
with a "bonus" room. The distinction is significant because
Vista Homes obtained permits for and built septic systems on the
properties that are approved and suitable for three bedroom
homes.

After the Youngs began having problems with their
septic system, Vista Homes and the Hardin County Board of Health
reached an agreement regarding the septic systems. Vista Homes
agreed to install a new system appropriate for a four bedroom
house. Vista Homes also contacted the other homeowners and
extended the same offer. The Youngs accepted the offer but
claim the new system installed by Vista Homes does not comply
with applicable building codes. The other homeowners declined
to have Vista Homes replace their septic systems.

Thereafter, the Youngs, the Prevosts, the Rollers, the
Suthers, and the Morelands each brought separate complaints
against Vista Homes, James and Fred Bramblett, and Re/Max. All
of the complaints asserted claims for misrepresentation, and a
private action for a code violation pursuant to KRS 198B.130.
The Youngs, the Prevosts, the Rollers, and the Morelands
asserted claims for negligent construction, and the Youngs and
the Morelands asserted claims for breach of warranty. Finally,
the Youngs also sought damages for loss of use of their
property, discomfort, and annoyance.

Because the cases involved similar issues and the same
defendants, the trial court ordered that they be consolidated
for motion and discovery practice. However, the Youngs' case
was tried first and separately. Prior to the trial in the
Youngs' case, the trial court granted partial summary judgment
on the Youngs' statutory claim for damages related to the
replaced septic system. The trial court concluded the Youngs
were precluded from recovering such damages because Vista Homes
had repaired and brought the system into compliance with
applicable zoning regulations and because the Youngs had not
identified any witnesses who would testify regarding any additional repair costs or diminution of the value of their
property.

The Youngs' remaining claims proceeded to a jury trial
in June 2004. At the close of the Youngs' proof, the trial
court entered directed verdicts dismissing the claims against
Re/Max, James Bramblett, and Fred Bramblett. The court also
granted a directed verdict on the Youngs' negligence claim
against Vista Homes, but allowed the remaining claims to proceed
to trial. After the close of all proof, the jury returned a
verdict in favor of the Youngs on all counts, awarding $3,000.00
in nominal damages on the misrepresentation claim, $3,900.00 in
punitive damages, and $600.00 for breach of warranty.

In post-verdict orders, the trial court reduced the
nominal damages award to $1.00, concluding the jury did not
comply with the court's instruction to award a "trivial" sum in
compensatory damages. Accordingly, the trial court entered a
judgment in favor of the Youngs totaling $4,501.00. The court
also denied the Youngs' motion for attorney fees. The court
recognized that KRS 198B.130(1) allows an award of attorney fees
in an action for damages arising out of a building code
violation, but the court declined to make such an award because
the Youngs had failed to prove actual damages arising from the
statutory violation.

The claims by the other homeowners proceeded to a jury
trial in February and March of 2005. As in the Youngs' case,
the trial court granted a directed verdict and dismissed the
claims against Re/Max, James Bramblett, and Fred Bramblett. The
court also sustained Vista Homes' motion for a directed verdict
on the negligence claims, but submitted the remaining claims to
the jury. After deliberating, the jury returned awards for each
of the homeowners in the following amounts:

Misrepresentation Code
Violation
Warranty Punitive
Damages
Prevost $1,000.00 $3,700.00 $2,050.00 $8,000.00
Roller $1,000.00 $3,700.00 $8,000.00 $8,000.00
Suther $1,000.00 $3,400.00 $1,750.00 $8,000.00
Moreland $1,000.00 $4,200.00 $1,700.00 $8,000.00

In its post-trial order, the trial court reduced the
awards for misrepresentation to $1.00, finding the homeowners
had failed to present evidence of a diminution in the fair
market value of the properties and that they had been awarded
the cost of repair separately under the other claims. The trial
court also found that the punitive damages awards were not
excessive. Finally, the trial court granted the homeowners'
motions for attorney fees for the code violation. However, the
court only required Vista Homes to pay a percentage of the award
recovered by the landowners for the building code violation.
Accordingly, the court ordered Vista Homes to pay $740.00 in
attorney fees to the Prevosts, $740.00 to the Rollers, $680.00
to the Suthers, and $840.00 to the Morelands.

After entry of the respective judgments, these appeals
and cross-appeals followed. Considering the related facts and
common issues presented, this Court ordered the appeals
consolidated. But while each judgment is based upon separate
facts, we recognize that the legal and factual issues are
overlapping. Consequently, we will address the questions
presented in these appeals by issue and then specifically apply
our analysis to the facts of each case.

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