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Terry v. O'Brien

Supreme Court of Vermont

October 23, 2015

Timothy Terry and Penny Terry
William O'Brien and Susan Cain O'Brien

Page 204

          On Appeal from Superior Court, Chittenden Unit, Civil Division. Dennis R. Pearson, J.

          Theodore J. Studdert-Kennedy and Ronald A. Ferrara of Otis & Kennedy, LLC, Montpelier, for Plaintiffs-Appellees.

          Nicole A. Killoran and John C. Gravel of Bauer Gravel Farnham, Colchester, for Defendants-Appellants.

          Marina A. Asaro, Montpelier, for Amicus Curiae Vermont Legal Aid, Inc.

         Present: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton, JJ.


Page 205

          Reiber, C.J.

          [¶1] Defendant landlords appeal a jury verdict and post-judgment order in this landlord-tenant action involving warranty-of-habitability and consumer-protection claims. We vacate the verdict and judgment, except for the jury's award of unpaid rent, and remand the matter for further proceedings consistent with this opinion.

         I. Facts and Procedural History

          [¶2] In the early 1980s, landlords William and Susan O'Brien purchased the subject property, which is located in the Old North End of Burlington and includes a two-story house and brick building (referred to as the creamery) with a common wall to the rear of the house. The creamery has no fixtures and has never been inhabited. After landlords purchased the property in 1982, the house was occupied for one year by landlords, then for several years by families in a refugee resettlement program, and then by the family of William O'Brien's sister for thirteen years until late 2002.

          [¶3] In December 2002, following foreclosure proceedings on their home in South Hero, plaintiff tenants, Timothy and Penny Terry, along with their two children, accepted landlords' offer to occupy the Old North End house rent-free for the time being. William O'Brien, an attorney, had represented members of the Terry family in various legal proceedings, including the foreclosure proceedings, during the previous fifteen years or so. After their first year in the house, tenants began paying rent. There was no written rental agreement, but, from at least December 2005, six years before tenants filed the instant lawsuit, there was an oral agreement to pay monthly rent in an amount that varied over the years. Eventually, the parties' relationship deteriorated because of landlords' unhappiness over tenants' nonpayment or late payment of rent.

          [¶4] In March 2005, Burlington Code Enforcement (BCE) inspected the house and cited landlords for multiple problems that required repair. A follow-up inspection in January 2006 confirmed that most of the repairs had been completed. BCE inspected the property again later in 2006 and found additional items that required repair, most of which were completed soon thereafter. In 2008, BCE performed several more inspections and issued notices of violations, many of which concerned the creamery. In May 2008, Vermont Gas inspected the house's furnace and determined that it needed to be repaired or replaced because it was in extremely poor condition. In November 2008, landlords had a 40,000 btu space heater installed on the first floor of the house, but apparently it was insufficient to heat the second floor. As a result, tenants began using space heaters on the second floor at night.

          [¶5] On December 15, 2008, a fire broke out in the attic of the house above one of the bedrooms. The bedroom below the point of the fire's origin sustained heavy fire damage, while the other rooms in the house sustained fire, smoke, and/or water damage. Tenants were not in the house when the fire occurred and thus were not injured, but they had to find a new place to live. The state fire investigator determined that the fire had begun at an electrical splice located in the attic. The splice

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connected the house's original knob-and-tube wiring to more modern Romex wiring and was buried in cellulose insulation. The investigator also noted tenants' use of multiple extension cords and supplemental wiring due to the insufficient number of functioning outlets. The investigator concluded that the fire was caused by a combination of the load on the older electrical system, the moisture from the cellulose insulation, and the inability of the knob-and-tube wiring to shed heat due to it being buried in the insulation.

          [¶6] Three years later, on December 14, 2011, Timothy and Penny Terry, along with their two children and a grandchild, filed a twenty-four-page complaint against landlords in the civil division of the superior court. They alleged: (1) breach of the oral rental agreement; (2) breach of the warranty of habitability, as set forth in 9 V.S.A. § 4457; (3) breach of the covenant of quiet enjoyment, in violation of 18 V.S.A. § 122(a) with respect to public health hazards; (4) violation of the Consumer Protection Act (CPA); (5) negligence; and (6) negligent infliction of emotional distress. Tenants sought, among other things, compensatory, consequential, punitive, and exemplary damages, as well as attorney's fees. Landlords counterclaimed for unpaid rent.

          [¶7] A week long jury trial was held in May 2014. After tenants rested, the trial court concluded that Timothy and Penny Terry had not presented sufficient evidence for the jury to award them economic damages but that they had presented sufficient evidence for the jury to award them, but not the other plaintiffs, damages for emotional harm stemming from the December 2008 fire. Accordingly, the court dismissed the claims brought by all of the plaintiffs except Mr. and Mrs. Terry. Moreover, the court collapsed tenants' first two counts into one claim of breach of the statutory warranty of habitability and dismissed their third and fourth counts claiming a breach of the covenant of quiet enjoyment and a violation of 18 V.S.A. § 122(a).

          [¶8] In the end, the trial court instructed the jury on only four of tenants' claims: (1) breach of the statutory warranty of habitability; (2) violating the CPA by renting a noncode-compliant residence; (3) committing negligent acts that caused the fire; and (4) negligently inflicting emotional distress on tenants because of the fire. The court further instructed the jury that it had determined as a matter of law that tenants' alleged injuries were restricted primarily to emotional suffering and other intangible injuries. The court also instructed the jury that landlords were alleging contributory negligence and seeking compensation for unpaid rent.

          [¶9] Following the jury charge, the trial court gave the jury special interrogatories to answer in reaching a verdict. In answering the special interrogatories, the jury concluded that: (1) landlords breached the warranty of habitability by renting tenants an unsafe or noncode-compliant residence; (2) the breach was a proximate cause of the intangible harms tenants claimed they suffered; (3) landlords did not act negligently; (4) landlords violated the CPA by renting to tenants an unsafe or noncode-compliant rental unit; (5) landlords' violation of the CPA was a proximate cause of the intangible harms tenants claimed they suffered; (6) landlords did not cause tenants to experience emotional distress by negligently exposing them to a risk of harm; (7) tenants' negligence was a proximate cause of the December 2008 fire, and their respective negligence as compared to that of landlords was thirty percent of the fault; (8) as compensation for the intangible injuries related to emotional distress, Penny Terry was entitled

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to $30,000 and her husband $10,000, to be reduced by the percentage of negligence assigned to them; (9) tenants were not entitled to recover any compensatory or exemplary damages as the result of landlords' violation of the CPA; and (10) tenants owed landlords $20,000 in unpaid rent.

          [¶10] As the result of the jury's verdict, the trial court entered a final judgment that awarded Penny Terry $21,000 and Timothy Terry $7000, but made them jointly and severally liable to landlords in the amount of $20,000 for the unpaid rent. Both parties filed post-trial motions. The trial court denied landlords' motion for judgment as a matter of law as well as their motion for attorney's fees, but granted tenants' motion for judgment as a matter of law with respect to landlords' counterclaim and granted tenants an award of attorney's fees, albeit in an amount significantly less than they requested. Tenants had sought $133,630 in costs and attorney's fees, but the court ultimately awarded them $3830 in costs and $53,930 in attorney's fees. Regarding landlords' counterclaim for unpaid rent, the court determined that landlords were not entitled to any unpaid rent because the jury's verdict could be read as determining that they were in breach of the warranty of habitability and noncompliant with state or city regulations between December 2005 and December 2008, the period for which the $20,000 awarded to landlords was due.

          [¶11] Landlords' general claims of error on appeal are that: (1) the trial court's jury instructions misled the jury on tenants' habitability and CPA claims, resulting in prejudice to landlords; (2) the court erred by vacating the jury's unpaid-rent award in its post-judgment order; and (3) the court abused its discretion by awarding tenants attorney's fees on their habitability and CPA claims and by denying landlords' attorney's fees based on tenants' contributory negligence.

         II. Warranty of Habitability

          [¶12] We begin with landlords' challenges to the trial court's jury instructions. Landlords first argue that the trial court misled the jury to their detriment by instructing the jurors to disregard, with respect to latent defects, the statutory notice requirement contained in 9 V.S.A. § 4458(a). Section 4458(a) sets forth remedies available to tenants when landlords fail to comply with habitability obligations " after receiving actual notice" of a noncompliance that materially affects health and safety. According to landlords, the plain language of § 4458(a), as amended, requires actual notice to the landlord before a tenant can recover for a violation of the statutory warranty of habitability, irrespective of whether the alleged defect is patent or latent. Landlords contend that the trial court's instruction prejudiced them because the evidence unequivocally demonstrated that they had no notice of the latent wiring defect that led to the fire and tenants' alleged intangible injuries.

          [¶13] The statutory warranty of habitability provides as follows: " In any residential rental agreement, the landlord shall be deemed to covenant and warrant to deliver over and maintain, throughout the period of the tenancy, premises that are safe, clean, and fit for human habitation and which comply with the requirements of applicable building, housing, and health regulations." 9 V.S.A. § 4457(a). The statute further provides that a tenant who proves that a landlord has failed to comply with the warranty within a reasonable period of time " after receiving actual notice ... from the tenant, a governmental entity or a qualified ...

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