Nelson v. Wick, No. S0322-02 Cncv (Katz, J., Mar. 3, 2004)

[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
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STATE OF VERMONT
Chittenden County, ss.:



NELSON

v.

WICK



                                  ENTRY

        Plaintiff seeks a ruling on the measure of damages following a
partial summary judgment on liability. Defendant disputes plaintiff’s
method to calculate damages and the point from which pre-judgment
interest should run. Plaintiff also seeks compensation for a lost opportunity
to purchase a house in Massachusetts and for damage to his credit record.
Defendant argues that these are speculative damages and improper for a
legal malpractice award.
       In 1999, plaintiff’s purchase and sale agreement with buyers for his
home fell through because the house lacked a certificate of occupancy from
the town in accordance with 24 V.S.A. § 4443. Defendant, plaintiff’s title
attorney, had originally conducted the title search in 1988 when plaintiff
purchased the house and did not report this missing permit. As a result,
defendant is liable for the damages resulting from plaintiff’s inability to sell
because of a title defect. Estate of Fleming v. Nicholson, 168 Vt. 495, 499
(1998). As a malpractice action, the measure of damages comes from the
negligence of the attorney. In other words, after proving the attorney was
negligent, plaintiff must prove by a preponderance of the evidence that the
negligence proximately caused the injury claimed. Fleming, 168 Vt. at
497; Callan v. Hackett, 170 Vt. 609 (2000) (mem.).

        Plaintiff originally purchased his home in 1988 for $175,000.
Plaintiff then lived in his home for the next ten years using it for collateral
on three loans and generally enjoying the benefits of home ownership. The
1999 Purchase and Sale agreement that plaintiff signed was for $179,000.
After the missing certificate ended this deal, plaintiff remained in
possession of the house. With the additional loans, plaintiff still carried
$163,186.08 in debt. Based on its ascertained value, plaintiff’s mortgage
company offered to forgive $134,613.59 of the mortgage price in exchange
for the title. Plaintiff agreed and the remaining debt was turned into an
unsecured $20,000 promissory note and cash payments of $8,572.49 made
to the mortgagee. Plaintiff now claims, through the proposed expert
testimony of appraiser Roger Fay, that the property was only worth $43,000
at the time of defendant’s title search in 1988.

       The purpose of damages in a malpractice suit is to put the plaintiff in
the same position as he would “have occupied had no wrong been
committed.” Kramer v. Chabot, 152 Vt. 53, 55 (1989). In this case,
plaintiff asserts that the only way to value his losses is through an out-of-
pocket theory, which would establish damages by taking the price paid in
1988 ($175,000) and subtracting the value of the home in 1988 as
established by plaintiff’s appraiser ($43,000) to arrive at the measure of
damages ($132,000). See Westine v. Whitcomb, 150 Vt. 9, 15 (1988)
(applying the out-of-pocket rule). The problem with this approach is that it
ignores the flexible nature of damage valuation that has been adopted in
Vermont. Kramer, 152 Vt. at 56–57 (“[The Vermont] approach leaves to
the trial court's discretion the determination of the best measure of damages
to make the injured party whole again.”); see also 4 R.Mallen & J. Smith,
Legal Malpractice § 31.10, at 706 (5th ed. 2000) (“The measure of damages
usually depends on the nature of the client’s interest in the property.”).

        There are several compelling factual wrinkles in the present case that
make the strict application of the out-of-pocket valuation rule inappropriate
in the present context. Defendant in the present case is liable to plaintiff
based on changes in liability for title attorneys over the past ten years. See
generally J.Farkas, Feature: Real Property Law—Bianchi II/S.144, 25 Vt.
Bar J. & L. Dig. 57 (1999) (detailing the liability roller coaster launched by
Bianchi v. Lorenz, 166 Vt. 555 (1997)). While plaintiff would like to
equate his situation with the plaintiffs in Fleming, where the out-of-pocket
rule was applied, the cloud on title involved here is quite different. In
Fleming, the defendant attorney found that the property lacked a critical
subdivision permit but did not inform his client because the administrative
agency had a non-enforcement policy. Fleming, 168 Vt. at 496. Following
the closing, Fleming occupied the house. In the meantime, the agency in
charge of permit enforcement reversed its policy and began enforcing the
permit requirement. Id. A few years later, Fleming’s estate, because of the
change, was unable to sell it for more than 15% of the original price. Id.
        In the present case, there is no proof that defendant attorney was
aware of the missing certificate of occupancy when he performed the title
search in 1988. Prior to Bianchi, title attorneys simply did not investigate
municipal permits because they did not affect marketable title. Farkas,
supra, at 57. While this does not affect defendant’s liability, it does alter
the fairness of making a valuation at the time of the transaction. It is
reasonable in looking at plaintiff’s damages to consider that he could have
sold the house at anytime prior to Bianchi with no loss. Indeed, plaintiff
effectively did sell this home three times before Bianchi when he
refinanced, taking out equity. Were we to adopt, as a measure of damages,
the difference in value at time of attorney error, we would then be in the
anomalous position of applying a Bianchi valuation, nine years before
anyone knew that was the standard, and therefore, before it actually did
effect market value.

        Moreover, plaintiff here, unlike the owners in Fleming, has not
suffered the same kind of total loss of value. When plaintiff sought to sell
his home in 1999, he had an agreement that would have netted him $5,500
in profit. Instead, because of defendant’s breach, he was unable to obtain
that price and had to settle for debt forgiveness of $134,613.59. In other
words, plaintiff was unable to profit but he still redeemed 78% of the
original value of the house. A far cry from the 15% recovered in Fleming.
See 4 Mallon & Smith, supra, at § 31.10 (“If the encumbrance results in a
complete loss of the property, the vendee of the property can recover its
value . . .”). To then award plaintiff a damage valuation of $132,000 based
on an estimate of its 1988 “Bianchi” value would give plaintiff $266,613.59
for a house that he was quite willing to sell for $179,000. Such an award
would clearly enrich the plaintiff and would not satisfy the principle of
compensation, which seeks only to put plaintiff in the position he would
have enjoyed had no wrong been committed. Kramer, 152 Vt. at 55.
Hence, an award based on the appraised diminution in value in 1988 is not
the proper method to determine plaintiff’s damage. Cf. Smith v. Staso
Milling Co., 18 F.2d 736, 739 (2d Cir. 1927) (L. Hand, J.) (noting that the
value of country property in Vermont is “what it will fetch.”).

       Were this not the proper conclusion, any pre-1997 property holder,
who had sold without loss, before Bianchi was handed down, could sue and
recover losses that never occurred. An appraiser would render a “Bianchi
valuation,” at time of purchase, despite the fact that both purchase and sale
occurred without regard to municipal permit problems.

        Within this context, it is more proper to look at the moment of the
plaintiff’s actual injury in 1999. Bean v. Sears Roebuck, 129 Vt. 278, 282
(1971). Prior to that point, plaintiff had enjoyed the full benefit of his
house for its indended purpose of residency as well as collateral functions
such as securing loans. While plaintiff never attempted it, there is no
reason to believe that the pre-Bianchi market would have stymied any
attempts to sell the home. Only when plaintiff was unable to complete his
sale because of the missing certificate did he suffered a cognizable harm.
While the defect may have existed throughout his ownership, his only true
injury and source of damages occurred in 1999. Following collapse of his
sale, plaintiff had several options. One was to cure the certificate defect.
Another was to minimize his exposure. Plaintiff was under no compulsion
to do either, but he chose the latter. By arranging an exchange with the
mortgagee, plaintiff in essence sold his house for $134,613.59. At the time
of injury, but for the certificate of occupancy, plaintiff’s house was worth
$179,000. See Bean, 128 Vt. at 283–84 (affirming fair value to be what a
willing buyer would pay a similarly disposed seller). Thus the difference in
value is $44,386.41. Bean, 128 Vt. at 282. This is a more appropriate basis
to measure plaintiff’s actual loss both because it reflects plaintiff’s actual
monetary shortfall and it assesses the damages at the point of injury. In
light of Kramer, however, we would make an additional adjustment to this
figure to include the real estate agent’s commission that plaintiff would
have incurred had the sale completed. Kramer, 152 Vt. at 56. From the
plaintiff’s own admission, this would be $10,500. Subtracting it out of the
damages above would give a final valuation for plaintiff’s damages at
$33,886.41. While plaintiffs and defendants may assert evidence to adjust
these numbers, this method will produce the only fair valuation of plaintiffs
damages that avoids unjust enrichment while putting him at a position he
would have occupied had defendant not committed a breach of duty.
Kramer, 152 Vt. at 56 (discussing the flexible approach to damages in fraud
and negligent misrepresentation cases).

        Plaintiff next argues that prejudgment interest should apply to the
earliest date possible, 1988. Fleming, 168 Vt. at 501. As our previous
discussion notes, plaintiff’s injuries were not reasonably ascertainable prior
to 1999 when the Bianchi decision coupled with defendant’s breach to
frustrate plaintiff’s purchase and sale. While the violation of plaintiff’s
rights may have technically occurred when he was not informed about the
missing certificate, his injury and damages do not occur until later during
the purchase and sale agreement. Therefore, it would make no sense to
charge pre-judgment interest for a period when the damage was not
reasonably ascertainable. Turcotte v. Estate of LaRose, 153 Vt. 196, 199
(1989) (pre-judgment interest is mandatory only “where the damages are
liquidated or reasonably ascertainable as of the date of the tort”);
Restatement (Second) of Torts § 913(1) (plaintiff entitled to interest from
the time adopted for valuation); see, e.g., Maxey v. Texas Commerce Bank
of Lubbock, 571 S.W.2d 39, 50–51 (Tex. Civ. App. 1978) (applying pre-
judgment interest at the date of injury rather than date of lawyer’s drafting).
For the same reasons that we listed above, we cannot apply the mandatory
pre-judgment interest from Turcotte. The damages simply were not certain
or ascertainable during plaintiff’s tenure in the house. Only after May 1999
were plaintiff’s expectations frustrated. Only then did he lose the profit
from the expected sale. Nothing in the damages compensates plaintiff for
this loss of time to invest and enjoy the 1999 profits. It is only just, then to
compensate him for the lost opportunity to invest. While pre-judgment
interest in this case is not mandatory, it is discretionary based on the award
of damages and circumstances of the parties. See Winey v. William E.
Daley, Inc., 161 Vt. 129, 141 (1993) (weighing equitable considerations to
decide pre-judgment interest where damages not readily ascertainable). We
conclude that plaintiff is eligible for pre-judgment interest beginning May
1999.

        Plaintiff’s two remaining claims deal with consequential damages
from the collapse of his purchase and sale agreement. As a general rule,
attorneys are not liable for speculative damages. Fritzeen v. Gravel, 2003
VT 54, ¶ 12. Plaintiff’s first claim for damages comes from an opportunity
in 1998 to purchase with his then-fiancée a house in Massachusetts.
Plaintiff claims because he was not able to sell his house in a timely
manner, he was unable to free the money to invest. In the meantime, the
house, which the fiancee purchased alone, has doubled in value. The
problem with plaintiff’s evidence is that there is no connection to the
missing certificate. In 1998, plaintiff simply failed to attract any buyers for
his house. There is no proof, thus far, that if the May 1999 deal had gone
through, that he still would have had the investment option or that this
failure led proximately to his failure to participate. Plaintiff’s agreement to
purchase the Massachusetts house was an oral arrangement with his
fiancee, with whom he has since broken up. He had no binding
commitment to the real estate and signed no written documents that would
confirm this opportunity as anything more than speculative. Lost
opportunity claims cannot be based on speculation. Bourne v. Lajoie, 149
Vt. 45, 53 (1987). At this point this arrangement appears to have too many
“what ifs” to establish a clear chain of causation to the failure of the
certificate.
        Plaintiff’s final contention is for the alleged damage his credit has
suffered as a result of returning his deed to the bank in exchange for the
release of the mortgage. Plaintiff’s proof on this claim, however, is weak.
Plaintiff has not applied for another mortgage, and has not been denied a
loan. His sole proof is his claim that he was turned down for a credit card.
While this appears to be hearsay evidence, it does not in and of itself
provide any link for causation since it did not state the reasons he was
declined. At best, plaintiff’s claim appears to be for future injuries that
might occur when he goes for another mortgage. These are not
compensable under Vermont law. Hedges v. Durrance, 2003 Vt. 63, ¶ 12.
Damage to credit is subject to proof. See Adamson v. Dodge, 174 Vt. 311,
323–25 (2002) (discussing proof of harm from credit ratings). Court will
not assume on basis of bald statement and then fabricate some value.

       Since defendant has not moved for summary judgment on these two
issues of consequential damage, plaintiff has not been required to make a
sufficient showing of these damages. Gallipo v. City of Rutland, 163 Vt.
83, 86 (1994). It would be improper, at this time, to dismiss these claims
without further opportunity to bring forth any and all additional evidence.
Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972). As the discussion
above illustrates, plaintiff’s current evidence even if accepted as true, is not
enough to establish these consequential damages.

       Therefore, plaintiff Nelson’s actual damages appear to be
$33,886.41 with prejudgment interest calculated at 1% from May 1999.
The clerk shall set this matter for further conference.
Dated at Burlington, Vermont________________, 2004.




                               ________________________
                               Judge
