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Center of Life Church v. Nelson

Supreme Court of South Dakota

May 30, 2018

CENTER OF LIFE CHURCH, Plaintiff and Appellee,
ROBERT NELSON and DEBRA NELSON, Defendants and Appellants.



          MITCHELL A. PETERSON of Davenport, Evans, Hurwitz, & Smith, LLP Sioux Falls, South Dakota Attorneys for plaintiff and appellee.

          TIMOTHY A. CLAUSEN RYLAND DEINERT of Klass Law Firm, LLP Sioux City, Iowa Attorneys for defendants and appellants.


         [¶1.] Shortly after purchasing a house, the buyers experienced significant water-penetration issues. The buyers subsequently sued the sellers for violating statutory-disclosure requirements. The jury found in favor of the buyers, and both parties appeal. The sellers argue the circuit court erred in denying their motions for judgment as a matter of law and for a new trial. The buyers argue the court erred in denying their request for attorney fees. We affirm.

         Facts and Procedural History

         [¶2.] In 1999, Robert and Debra Nelson purchased the single-family house that is at issue in this case. It is a large 6, 100 square foot structure that sits at the bottom of a hill. It has a swimming pool and two separate basements: one located under the kitchen and one located under the garage. The kitchen basement was finished and had several rooms. The garage basement was unfinished, had a crawl space, and was primarily used for storage. Water from the home's sump pumps, roof gutters, and drains in the backyard patio drained into four underground pipes that ran near the house and into the street.

         [¶3.] In 2003, Nelsons began experiencing water penetration in the kitchen basement. They had a "LaCroix" dewatering system installed. The installation involved drilling holes in the foundation to allow the water to run into a plastic gutter that ran inside the house to a sump pump. The system did not prevent water penetration but instead redirected it. According to Nelsons, they did not experience further water problems in the kitchen basement after installing the LaCroix system.

         [¶4.] In 2008, after deciding to build a new home, Mr. Nelson noticed a puddle of water in the garage basement. He had a "Blackburn" dewatering system installed in the garage basement. Installation of that system involved removal of part of the concrete floor to install tile, which collected and directed the water to a sump pump. Mr. Nelson testified he did not go into the garage basement very often, but he stated he did not notice any water-penetration issues in the garage basement after installing the Blackburn system.

         [¶5.] Nelsons moved out of the house in April or May 2009. Prior to putting it on the market, they painted most of the interior walls, replaced the hardwood floors, and installed several new appliances. In June 2009, they put the house on the market and filled out the seller's disclosure form required by SDCL 43-4-37 to -44. At the urging of their real estate agent, Jay Zea, Nelsons also had "HouseMaster" perform a home inspection and prepare a report.

         [¶6.] The inspection report noted that there were water marks and stains on the walls and floor and that one of the sump pumps was broken. It also noted that the grade around parts of the house sloped toward the foundation. Although the report noted the sloping landscaping, Zea wrote on the report: "Normal. No problem." Zea testified that he made this notation because Mr. Nelson told him it was not a problem.

         [¶7.] Section II of the disclosure form requires yes or no answers to questions concerning structural information. The form also requires that sellers who answer "Yes" to any of the questions are to "explain" in additional comments or on an attached separate sheet. The first question under Section II of Nelsons' form asked: "Are you aware of any water penetration problems in the walls, windows, doors, basement, or crawl space?" Nelsons checked the box marked "Yes." After the question, Nelsons wrote, "Basement." The second question asked for the date and nature of any "water damage related repairs that were made." Nelsons wrote: "Basement dewatering system installed" in the "Last 5 years." The statement did not incorporate the home inspection report, [1] and no other information concerning water penetration issues was disclosed.

         [¶8.] Judy Shaw, a pastor at the Center of Life Church, expressed interest in the house after her friend and real estate agent, Marcie Raggow, recommended it. Shaw believed the house would be a good place to hold Church meetings and provide lodging for missionaries who were temporarily staying in the area. In August 2009, Shaw and members of the Church provided Nelsons with a brochure suggesting they donate the house to the Church for tax benefits. Nelsons declined.

         [¶9.] Shaw, Raggow, and other Church members walked through the house several times between August and November 2009. Shaw and Raggow also reviewed the disclosure form and HouseMaster report. No one noticed any signs of water, mold, or mildew problems.

         [¶10.] In November 2009, the Church made a formal offer at the full listing price ($658, 000) if Nelsons would donate half of the purchase price back to the Church. The offer was not contingent on the Church's own inspection. Nelsons counteroffered for $595, 000. The Church did not respond to the counteroffer and it expired.

         [¶11.] In December 2009, Shaw approached Mr. Nelson to continue negotiations. The parties agreed on a price of $540, 000 with no donation. A purchase agreement was executed that did not contain a contingency for the Church's own inspection. The formal closing took place in early January 2010.

         [¶12.] About one week after closing, Sioux Falls experienced a January rainstorm, and Shaw observed a significant amount of mud and water flooding into the garage basement and crawl space. A week later, Shaw observed more water coming in from the walls in both basements. The Church continued to have water problems every time it rained. They also experienced leaking from the roof and gutters. When Mr. Nelson met with the Church at the house concerning these problems, he suggested they needed to remove snow from the backyard patio and the roof. The Church continued to experience significant water problems during subsequent summers and winters.

         [¶13.] In the summer of 2011, the Church hired several contractors to look at the problem. One contractor used a "snake" camera to inspect the drain pipes that ran under the yard and driveway. He observed that the pipes were shattered. He believed that this was caused by inadequate sloping and ice jams that caused water to build up and freeze in the pipes.

         [¶14.] The estimates to repair the home were large; and the Church sued Nelsons for violating the statutory disclosure requirements, fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation. At trial, the Church called several witnesses, including three experts who opined that the dewatering systems installed by Nelsons were insufficient. They also testified it was likely that the problems experienced by the Church had been ongoing and could not have first appeared after the Church acquired the property. At the close of the evidence, Nelsons filed a motion for judgment as a matter of law. The circuit court reserved ruling on the motion and submitted the case to the jury.

         [¶15.] The jury found in favor of Nelsons on the Church's claims of fraudulent misrepresentation, fraudulent concealment, and negligent misrepresentation. However, the jury found in favor of the Church on its statutory disclosures claim. The jury awarded $192, 047.91 of the Church's $377, 231.42 request for damages and repairs.

         [¶16.] In post-trial proceedings, the circuit court denied Nelsons' motion for judgment as a matter of law. Nelsons then renewed the motion, arguing there was no evidence that they failed to truthfully complete the disclosure statement in good faith. The court denied the motion. Nelsons also moved for a new trial based on an objectionable statement of a Church witness, a violation of the court's sequestration order, and violations of an order prohibiting ...

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