WA 02 08 Laporte case

KENNEDY, J. -- This case arises from the termination of a home remodeling agreement. Homeowners Bryan LaPorte, Kathleen Schroeder-LaPorte, K. Scott Lewallen, and Kristina Lewallen filed suit against Definitive Homestyling, Inc., Jerrold A. Taggart and others, alleging breach of contract, conversion and fraud. Following a bench trial, the court ruled in favor of the homeowners, finding that the Taggarts were personally liable for damages on the fraud claim. Definitive Homestyling and the Taggarts argue that (1) the trial court erred in denying their motion for a continuance of the trial date; (2) the trial court's finding that they committed fraud was not supported by substantial evidence; and (3) the trial court erred by entering a written determination that its findings were based on clear, cogent and convincing evidence, after failing to so state in the oral decision. Finding no error, we affirm and award attorney fees to the homeowners for having to defend against a frivolous appeal.

FACTS

In 1998, the LaPortes and Lewallens decided to do some major remodeling work on a home they owned in Duvall. After investigating several contractors, they selected "Classic American Home Revisions." Classic American Home Revisions was owned by Kenneth E. Peterson. Peterson employed Jerrold A. Taggart as a carpenter, and Rochele Harnetiaux as an assistant designer. Ms. LaPorte was the primary contact person who dealt with the contractors, and Scott Lewallen was the secondary contact person.

On September 10, 1998, the LaPortes and Lewallens signed a Notice of Intent to Remodel with "Classic American Home Revisions." They tendered a deposit in the amount of $8,835 for developing and designing the project drawings and plans, preparing specifications, processing permits, and pricing.

On February 1, 1999, Peterson and Harnetiaux presented the homeowners with a form construction agreement for the project. The agreement represented that the contractor for the work was "Previsionary Concepts, Inc. d/b/a Home Revisions." The references on the printed form to "Classic American Home Revisions" were stricken, and the business name "Home Revisions" was substituted. When Ms. LaPorte asked why the company name had changed, Peterson and Harnetiaux told her that the company had to change its name to distinguish itself from another company with a similar name, that the company was "trying to find {its} identity," and that this was an interim name until they decided on something permanent. Peterson and Harnetiaux admitted that they had not done much work on the project yet because they had recently discovered that their subcontractors and employees were cheating them. Because the plans were not yet completed, the homeowners refused to sign the construction agreement.[1]

At a meeting on April 5, 1999, the homeowners asked how things were going for the company, and were assured that things were fine. Peterson and Harnetiaux introduced Jerrold Taggart, and explained that Taggart would be the superintendent for the job. Taggart "basically just sat and witnessed the meeting." Vol. 1, Report of Proceedings at 111. Peterson presented the homeowners with another proposed construction agreement. This agreement showed "Definitive Homestyling, Inc." to be the contractor for the remodel work. The homeowners teased Peterson and Harnetiaux about the repeated name changes, and were told that the company had settled on Definitive Homestyling as the company name. But because the project plans still had not been completed, the homeowners again refused to sign this agreement.

At this meeting, no mention was made of the true state of affairs: Peterson was facing bankruptcy, and Home Revisions was going out of business. Furthermore, Definitive Homestyling was a new company that was being started by Taggart, and that was doing business from the same location as had Home Revisions.

On May 4, 1999, the homeowners again met with Peterson, Taggart and Harnetiaux and were presented with yet another construction agreement for signature. Taggart "was again just present for the meeting and sat as a witness for most of it, it seemed." Vol. 1, Report of Proceedings at 113.

The plans were finally completed at that meeting, and the homeowners were prepared to sign the construction agreement. At that point, they were informed that "Jerry {Taggart} now owns the company." Vol. 1, Report of Proceedings at 113. The homeowners asked what this meant, and were told that Peterson "didn't feel like owning a business anymore. And Jerry had always wanted to own a business, so basically Jerry just took over the business for Ken {Peterson}." Vol. 1, Report of Proceedings at 113-14. Again, no mention was made of Peterson's financial difficulties, or that Definitive Homestyling was an entirely new company. Ms. LaPorte testified that "it kind of gave us a strange feeling that all of a sudden the company now belongs to someone else." Vol. 1, Report of Proceedings at 114.

However, the homeowners were assured that it was "business as usual" and that everything would happen as planned. Vol. 1, Report of Proceedings at 113-14. The homeowners were also told that the initial deposit of $8,835 would be sufficient for development and design of the project drawings and plans, and that excess funds from that deposit could be applied to the permit process. That evening, the homeowners discussed the situation and decided not to use Definitive Homestyling for the remodeling job because "we just didn't really like the idea of how the whole business structure had played out." Vol. 1, Report of Proceedings at 115. But the next day, Taggart met with Scott Lewallen and convinced him that the homeowners should retain Definitive Homestyling. Thus, the homeowners finally signed the agreement and tendered a $90,000 deposit to Definitive Homestyling.

Despite repeated inquiries from the homeowners, Definitive Homestyling failed to make any progress on the project, failed to obtain construction permits, and failed to perform any remodeling work under the contract. Nor did they provide the homeowners with regular billing statements, advise them as to the project status, or give reasons for the delay. On July 20, 1999, Peterson, Taggart and the homeowners held a meeting wherein the homeowners terminated the agreement. On August 18, 1999, Definitive Homestyling reimbursed the homeowners in the amount of $40,000, but failed to return the remaining $50,000, as it had promised to do. The homeowners then filed a complaint for monies due, alleging breach of contract, conversion, and fraudulent or intentional misrepresentation. Taggart filed an answer and counterclaim for lost profits and unjust enrichment. The Petersons and Contractors Bonding and Insurance Co. were voluntarily dismissed prior to trial, based on Peterson's bankruptcy filing. Defendants Rochele and John Doe Harnetiaux were also dismissed without prejudice, for lack of service of process. The homeowners proceeded to trial against Definitive Homestyling and Jerrold and Jane Doe Taggart.

On June 20, 2001, following a bench trial, the court dismissed the Taggarts' counterclaims with prejudice and entered judgment in favor of the homeowners in the amount of $50,000 plus prejudgment interest and costs. The court found that Jerrold Taggart's failure to disclose information as to the true state of affairs concerning his business relationship with Peterson, as well as the relationship between Classic American Home Revisions, Home Revisions, and Definitive Homestyling was a misrepresentation of material fact. The court also found that Taggart's assurances that the $8,835 deposit was sufficient to cover the design work for the project misled and induced the homeowners to sign the agreement. The court concluded that Definitive Homestyling breached the agreement by failing to perform and that the homeowners had a right to terminate the agreement. The court further found that Taggart's acts, conduct and misrepresentations constituted fraud, proven by clear, cogent and convincing evidence, thereby making the Taggarts personally liable for fraud.

ANALYSIS

Taggart first contends that the trial court abused its discretion in denying the appellants' motion for a trial continuance. CR 40(d) provides that "{w}hen a case is called for trial, it shall be tried or dismissed, unless good cause is shown for a continuance." And King County Superior Court Local Rule 40(e)(2) further provides that "if a motion to change the trial date is made after the Final Date to Change Trial Date, as established by the Case Schedule, the motion will not be granted except under extraordinary circumstances where there is no alternative of preventing a substantial injustice."

"{A} party does not have an absolute right to a continuance, and the granting or denial of a motion for a continuance is reversible error only if the ruling was a manifest abuse of discretion." Willapa Trading Co., Inc. v. Muscanto, Inc., 45 Wn. App. 779, 785, 727 P.2d 687 (1986). A court abuses its discretion where the discretion was manifestly unreasonable, based on untenable grounds or for untenable reasons. Moreman v. Butcher, 126 Wn.2d 36, 40, 891 P.2d 725 (1995). In Balandzich v. Demeroto, 10 Wn. App. 718, 720, 519 P.2d 994 (1974), the court discussed some of the factors bearing upon the decision: In exercising its discretion, the court may properly consider the necessity of reasonably prompt disposition of the litigation; the needs of the moving party; the possible prejudice to the adverse party; the prior history of the litigation, including prior continuances granted the moving party; any conditions imposed in the continuances previously granted; and any other matters that have a material bearing upon the exercise of the discretion vested in the court.

We find nothing in the record to suggest that the trial court abused its discretion in denying the motion for a continuance. Taggart was previously represented by counsel, and continued pro se after his counsel withdrew. Although trial was scheduled to begin on Monday, April 30, 2001, Taggart did not retain new counsel until Friday, April 27. On the day of trial, counsel for Taggart filed a motion for continuance. Counsel asserted that a continuance was necessary because he had not yet received any of the plaintiffs' trial exhibits and was unable to prepare for trial. Counsel further asserted that no alternative dispute resolution had ever occurred, despite Taggart's desire for same. Taggart claimed that when he called the courthouse on March 8, 2001, to confirm the pretrial conference scheduled for the following day, he received a recorded message stating that all further matters were canceled because of the February 28 earthquake. Taggart said that he left his phone number and was never called back.

The trial court found that Taggart's situation was largely of his own making because he chose not to retain trial counsel until the eleventh hour. Therefore, it would be unfair to the other party to excuse case schedule deadlines merely because the defendants did not take the necessary steps to prepare to defend the lawsuit. Furthermore, as the trial court observed, the record does not support Taggart's version of events regarding the trial exhibits or attempts at alternate dispute resolution. On April 9, 2001, counsel for the homeowners sent Taggart a copy of the Plaintiff's Witness and Exhibit Lists, including plaintiffs' exhibits. Clerk's Papers at 9, 10 and 78. On April 11, 2001, Taggart wrote a letter in reply, acknowledging that "I received your package of `witness' and `exhibits.'" Clerk's Papers at 80. And there is ample evidence that counsel for the homeowners made a good faith effort to engage in settlement discussions with Taggart. On March 13, 2001, counsel sent a letter to Taggart regarding Taggart's failure to attend the required pretrial conference, and reminding Taggart that "{l}ocal rules and procedures require that all parties prior to trial attend a settlement conference or complete an alternative dispute resolution mediation." Clerk's Papers at 82. Counsel said that Taggart called him and left a message, but subsequently did not return counsel's calls. Taggart finally called counsel on April 19, 2001, but their settlement discussions were fruitless.

Not only did Taggart wait until the last possible moment to retain trial counsel, but he also seemingly misinformed his trial counsel as to the true course of events leading up to the trial date, so that the request for a continuance was based on blatant misrepresentations. The trial court's denial of Taggart's motion for a continuance was not an abuse of discretion.

Taggart next argues that there was not substantial evidence to support the trial court's determination that he was personally liable on the basis of fraud. Where the trial court has weighed the evidence, appellate review is limited to ascertaining whether the findings of fact are supported by substantial evidence and, if so, whether the findings support the conclusions of law and the judgment. Morgan v. Prudential Ins. Co. of Am., 86 Wn.2d 432, 437, 545 P.2d 1193 (1976). "'Substantial evidence' is evidence in sufficient quantum to persuade a fair-minded person of the truth of the declared premise." Fred Hutchinson Cancer Research Ctr. v. Holman, 107 Wn.2d 693, 712, 732 P.2d 974 (1987). Taggart has not specifically assigned error to any of the trial court's findings of fact; thus they are verities on appeal. In re Contested Election of Schoessler, 140 Wn.2d 368, 385, 998 P.2d 818 (2000).

At trial, the elements of fraud must be proven by clear, cogent and convincing evidence. Stiley v. Block, 130 Wn.2d 486, 505, 925 P.2d 194 (1996). This is "the equivalent of saying that the ultimate fact in issue must be shown to be 'highly probable.'" Douglas Northwest, Inc. v. Bill O'Brien & Sons Constr., Inc., 64 Wn. App. 661, 678, 828 P.2d 565 (1992). It is the trier of fact, and not the appellate court, that must weigh the evidence and decide whether it meets the standard of clear, cogent and convincing; the appellate function begins and ends with ascertaining whether or not there is substantial evidence supporting the facts as found. Bland v. Mentor, 63 Wn.2d 150, 154, 385 P.2d 727 (1963).

The nine essential elements of fraud are: (1) representation of an existing fact; (2) materiality; (3) falsity; (4) the speaker's knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the plaintiff; (6) plaintiff's ignorance of its falsity; (7) plaintiff's reliance on the truth of the representation; (8) plaintiff's right to rely upon it; and (9) damages suffered by the plaintiff. Stiley, 130 Wn.2d at 505.

Where the parties through the course of their dealings have established a fiduciary or other "special relationship," a duty to disclose material facts arises. Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wn.2d 726, 732, 853 P.2d 913 (1993). The existence of a duty is a question of law. Id. at 731, citing Taylor v. Stevens Cy., 111 Wn.2d 159. 168, 759 P.2d 447 (1988). A duty to disclose material facts arises where the facts are peculiarly within the knowledge of one party to a business transaction and could not be readily obtained by the other, where one party is relying on the specialized knowledge and experience of the other, and where by lack of business experience of one of the parties, the other takes advantage of the situation by remaining silent. Colonial Imports, at 732, citing Oates v. Taylor, 31 Wn.2d 898, 904, 199 P.2d 924 (1948); Favors v. Matzke, 53 Wn. App. 789, 796, 770 P.2d 686 (1989). "If there is a special relationship between the parties, such that the law imposes an affirmative duty to disclose material information, silence may be sufficient to establish fraudulent concealment." Giraud v. Quincy Farm & Chemical, 102 Wn. App. 443, 453 6 P.3d 104 (2000), review denied, 143 Wn.2d 1005 (2001).

Here, the homeowners were relying upon the planning, design, permit and remodeling expertise, first of Peterson and then of Taggart. The homeowners' lack of experience in such matters, indeed their naiveté, is amply demonstrated by their willingness to deposit $90,000, rather than negotiating a contract for payments in stages as the work progressed. The business relationship and financial conditions of Peterson, Taggart and their respective companies was peculiarly within their own knowledge and not readily ascertainable by the homeowners. Given the unchallenged findings of fact in this case, we conclude as a matter of law that Taggart had a duty to disclose such facts to the homeowners as Taggart knew or should have known were material to their decision to deposit $90,000 with his company for the performance of this home remodeling job.

The trial court found two misrepresentations of material fact, which are amply supported by evidence that is substantial. First, Ms. LaPorte testified that the appellants assured her that the initial $8,835 deposit would pay for the design costs and take the project up to the permitting stage, when in fact it did not. Second, Ms. LaPorte testified that Peterson and Taggart led the homeowners to believe that they were dealing with the same business entity the entire time, when in fact Peterson's company had gone bankrupt and Taggart's new company had taken over the job. The trial court explained the materiality of these matters: The homeowners were led to believe that that they were dealing with the same company to which they tendered their original deposit. Had they been told that Peterson's company had gone bankrupt and that they were now dealing with an entirely new business entity, they would at the very least have asked what had become of their $8,835 deposit. And had they been told that the money was spent and the design work was still not completed to the permit phase, it is highly doubtful that they would have deposited an additional $90,000 with a different company, namely Taggart's. Peterson and Taggart intended that their misrepresentations and lack of disclosure be relied upon by the homeowners to induce them to deposit the additional $90,000 with Taggart. The homeowners relied on the misrepresentations and lack of disclosure by tendering the $90,000, and they suffered damages when Taggart failed to perform any of the remodeling work and failed to refund the entire deposit.

The trial court also found that Taggart himself either misrepresented the facts or adopted Peterson's misrepresentations made in his presence by remaining silent. The court found the testimony of Peterson and Taggart not credible to the extent that it contradicted the testimony of the homeowners.

Taggart cites Tokarz v. Frontier Fed. Sav. & Loan Ass'n, 33 Wn. App. 456, 463, 656 P.2d 1089 (1982) for the proposition that respondents' reliance was unreasonable as a matter of law because they were presented with information that cast doubt on the nature of the business entities, but went ahead and signed the contract without conducting any further investigation. Taggart misstates the import of Tokarz. The Tokarz court at 464 stated that "{a} party cannot be permitted to say he was taken advantage of, if he had means of acquiring the information, or if, because of his business experience or his prior dealings with the other party, he should have acquired further information before he acted," citing Oates, 31 Wn.2d at 904. Oates makes it clear that this rule applies only where the parties had no fiduciary or special relationship and were dealing "at arm's length."[2] Here, the parties were not dealing at arm's length. These inexperienced and naive homeowners developed a special relationship, first with Peterson and then with Taggart, upon whose expertise they relied, during the ongoing course of their dealings. Moreover, the homeowners did ask questions about the same material facts that Peterson and Taggart were concealing, but to no avail -- the homeowners asked the right questions but Peterson and Taggart failed to answer them truthfully.

Taggart also contends that because the trial court failed to specify in its oral decision that its finding of fraud was based on clear, cogent and convincing evidence, it lacked the authority to interlineate that language in its written findings of fact and conclusions of law. This claim is totally devoid of merit. CR 52(a)(1) states that "{i}n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specifically and state separately its conclusions of law." As is customary, the trial court rendered its oral decision, and the prevailing party prepared written findings of fact and conclusions of law. The trial court then reviewed the findings and conclusions and properly inserted corrections and interlineations as it saw fit. Indeed, "a trial judge's oral decision is no more than a verbal expression of his {or her} informal opinion at that time. It is necessarily subject to further study and consideration, and may be altered, modified, or completely abandoned. It has no final or binding effect, unless formally incorporated into findings, conclusions, and judgment." DGHI Enter. v. Pacific Cities, Inc., 137 Wn.2d 933, 944, 977 P.2d 1231 (1999), quoting Feree v. Doric Co., 62 Wn.2d 561, 566-67, 383 P.2d 900 (1963). Moreover, even if the trial court had neglected to specify the standard of proof in the written findings as well as the oral ruling, there would be no reversible error. Courts have presumed that the trial court observed the standard of proof required in fraud cases and found that the evidence was clear, cogent and convincing, where the record shows substantial evidence to support the court's findings. Markov v. ABC Transfer & Storage Co., 76 Wn.2d 388, 396, 457 P.2d 535 (1969).

We affirm the trial court's findings, conclusions and judgment in this matter, in all respects.

The homeowners ask to be awarded their attorney fees for having to defend a frivolous appeal. They argue that they are entitled to attorney fees under the standard of Gall Landau Young Constr. Co., Inc. v. Hurlen Constr. Co., 39 Wn. App. 420, 432, 693 P.2d 207 (1985): In determining whether an appeal is frivolous . . . we are guided by the following considerations: (1) A civil appellant has a right to appeal under RAP 2.2; (2) all doubts as to whether the appeal is frivolous should be resolved in favor of the appellant; (3) the record should be considered as a whole; (4) an appeal that is affirmed simply because the arguments are rejected is not frivolous; (5) an appeal is frivolous if there are no debatable issues upon which reasonable minds might differ, and it is so totally devoid of merit that there was no reasonable possibility of reversal.

Considering the record as a whole, and taking into account a civil appellant's right to appeal, we conclude that this appeal is frivolous. The trial court's denial of the request for a continuance was discretionary in nature, and based on tenable grounds that are clearly covered by the warning contained in King County Superior Court Local Rule 40(e)(2) that continuances sought after the final date to request such relief set forth in the case schedule will not be granted absent extraordinary circumstances. Taggart failed to show extraordinary circumstances. Unexplained failure to retain trial counsel until the Friday before a Monday trial date that has been pending for months is not an extraordinary circumstance justifying relief; it is a self-made crisis. Moreover, Taggart provided the court with inaccurate information in an effort to obtain the continuance. Taggart's position on appeal of this issue is so totally devoid of merit that there was no reasonable possibility of obtaining a reversal of the trial court's discretionary ruling.

The trial court's findings of fact supporting the determination of fraud are based on the testimony of witnesses that the trial court found to be more credible than the contradictory testimony of Messrs. Peterson and Taggart. Credibility determinations are entirely for the trier of fact and not the appellate court. A challenge to the sufficiency of evidence based on trial testimony that the trial court found to be believable will invariably fail, where such testimony contains the essential elements of the proposition that the prevailing party was required to prove at trial. Taggart's contention that the homeowners should somehow have discovered his subterfuge -- Taggart does not explain how they might have done this -- is so devoid of merit that there was no possibility of reversal. The contention is based on a misreading or misrepresentation of the holding in Tokarz, as well as a misreading or misrepresentation of the actual testimony at trial.

Finally, the proposition that a trial court is somehow bound by what was said or not said during an oral ruling, and cannot make interlineations into the court's own findings of fact and conclusions of law, simply because the court failed to cover every aspect of the case during the oral ruling, and simply because neither party asked for the interlineations, is ludicrous.

The homeowners are entitled to be compensated for their reasonable attorney fees and costs incurred for defending this frivolous appeal, in a sum to be determined by a commissioner of this court, upon the homeowners' timely compliance with the requirements of the applicable Rules of Appellate Procedure.

Footnotes:

[1] Although the findings of fact and conclusions of law state that "the plaintiffs did sign this agreement," the record unequivocally supports respondents' claim that this was an unintentional scriveners' error, and that the sentence should read that the "plaintiffs did not sign this agreement." Clerk's Papers at 36.

[2] "It will thus be seen that the duty to speak does sometimes arise when the parties are dealing at arm's length. That duty arises where the facts are peculiarly within the knowledge of one person and could not be readily obtained by the other; or where, by the lack of business experience of one of the parties, the other takes advantage of the situation by remaining silent. However, a party cannot be permitted to say that he was taken advantage of, if he had means of acquiring the information, or if, because of his business experience or his prior dealings with the other, he should have acquired further information before he acted." Oates, 31 Wn.2d at 904.

Fraud Law Resources for Oregon and Washington

Court of Appeals Division I

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

FACTS

ANALYSIS