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Trevor v. Icon Legacy Custom Modular Homes, LLC

Supreme Court of Vermont

August 15, 2019

Dagney Trevor
Icon Legacy Custom Modular Homes, LLC, et al.

          On Appeal from Superior Court, Chittenden Unit, Civil Division Robert A. Mello, J.

          Stephen D. Ellis of Paul Frank Collins PC, Burlington, for Plaintiff-Appellee/ Cross-Appellant.

          Allan R. Keyes of Ryan Smith & Carbine, LTD, Rutland, for Defendants-Appellants Icon Legacy Custom Modular Homes, LLC and Icon Legacy Transport, LLC.

          Gregory A. Weimer and Adrienne Shea of Lynn, Lynn, Blackman & Manitsky, P.C., of Burlington, for Defendants-Appellees Osborne Construction, LLC, Paul Osborne.

          Richard H. Wadhams, Jr. of Pierson Wadhams Quinn Yates & Coffrin, LLP, and Maxwell Krieger, Burlington, for Defendant-Appellee Merusi Builders, Inc.

          PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.

          SKOGLUND, J.

         ¶ 1. This appeal arises from the sale and construction of a new modular home that suffered from significant deficiencies. Appellants-Icon Legacy Custom Modular Homes, LLC and Icon Legacy Transport, LLC-challenge a series of trial court orders in favor of appellees-Dagney Trevor, Merusi Builders, Inc., Osborne Construction, LLC, and Paul Osborne. For the reasons stated below, we affirm in part and reverse in part.

         I. Facts and Procedural History

         ¶ 2. Because there are many parties involved in this appeal, we identify them, their role in the case below, and their role in the current appeal. Dagney Trevor (Trevor) is the purchaser of the defective modular home, the plaintiff in the suit below, and appellee and cross-appellant in the current appeal. Icon Legacy Custom Modular Homes, LLC (Icon Legacy) and Icon Legacy Transport, LLC (Icon Transport) are the manufacturer and transporter of the defective modular home purchased by Trevor, defendants in the suit below, and appellants in the current appeal.[1]Osborne Construction, LLC (Osborne Construction) and Paul Osborne (Osborne) are collectively the contractor involved in the assembly of the defective modular home, two of the defendants in the suit below, and appellee in the current appeal. Merusi Builders, Inc. (Merusi) is a subcontractor involved in the assembly of the defective modular home, one of the defendants in the suit below, and appellee in the current appeal. And, even though they are not parties in the current appeal, [2]we identify, for clarity's sake, Vermont Modular Homes, Inc., David Curtis, and Blane Bovier as Icon's Vermont-based "approved builders" and as three of the defendants in the suit below.

         ¶ 3. The facts of this case are relatively simple. In 2015, Trevor purchased an Icon Legacy Custom Modular Home to replace her home, which she had lost in a fire the previous year. Icon's communications with Trevor relating to the design, specifications, sale, delivery, and installation of the home were primarily through Icon's "approved builders," Curtis and his company, Vermont Modular Homes. During the sale of the home, Curtis communicated with Icon's employees, who in turn prepared drawings, price lists, and other marketing material for Curtis to provide to Trevor. Once Trevor bought the home, it was assembled by Osborne Construction and Merusi in their capacities as contractor and subcontractor. The home sustained significant water damage during a rainstorm when water entered the home before the roof installation was complete. Other structural defects emerged after Trevor moved into the home. Although Icon and Vermont Modular Homes repaired some of the damage, major defects relating to both the water damage and alleged improper construction remained in the home.

         ¶ 4. The procedural history, on the other hand, is relatively complex. Trevor filed suit against Icon Legacy, Icon Transport, Vermont Modular Homes, Curtis, Bouvier, Osborne Construction, Osborne, and Merusi. Icon and Vermont Modular Homes filed suit as cross-claimants, seeking indemnification, among other things, against Osborne Construction, Osborne, and Merusi. And Curtis and Bouvier filed suit as a cross-claimants against Osborne Construction, Osborne, and Merusi.

         ¶ 5. The parties created, and the court approved, the first discovery-schedule order in early 2016, and then the amended discovery-schedule order in December 2016. The second order set a deadline of April 1, 2017, for discovery to be completed, the case to be ready for trial, and all pretrial motions to be filed, except those based on circumstances that arose after the cut-off date or a motion to dismiss for lack of subject matter jurisdiction.

         ¶ 6. In February 2016, Icon sent Trevor a letter with a flash drive enclosed "with the project files maintained by Icon" and noted that it would email any additional documents it located. The following day, Icon responded to Trevor's interrogatories and requests for production, and indicated that all relevant and discoverable documents would be produced for inspection and copying at Icon's office. These responses were signed by Icon's sales manager, not by an attorney of record as required by Vermont Rule of Civil Procedure 26(g).

         ¶ 7. On December 9, 2016, Trevor served Icon with a notice of deposition pursuant to Vermont Rule of Civil Procedure 30(b)(6), specifying Burlington, Vermont, where all attorneys of record had their offices, as the location for the deposition. Icon moved for a protective order to permit its designees to appear remotely from Icon's headquarters in Pennsylvania. In support of its motion, Icon submitted affidavits from Icon's Pennsylvania-based general counsel and Icon's Rule 30(b)(6) authorized agent. The authorized agent stated that he "was involved in assembling the documents to be produced by Icon in this case" and that "[t]here [were] very few documents in this case involving Icon." General counsel stated that it was "aware that the documents produced in discovery [had] been exchanged electronically" and that "it [would] be an easy matter for . . . Icon's corporate designees to follow along with any questioning as to documents." The court granted Icon's motion for a protective order and the depositions were conducted remotely.

         ¶ 8. On April 21, 2017, after Icon's 30(b)(6) depositions were complete and the deadline set by the discovery order had passed, Icon's local Vermont counsel sent a letter purporting to be a belated Rule 26(g) certification for Icon's 2016 responses to Trevor's discovery requests. In response, Trevor asked Icon to supplement its prior document production with all Icon emails having any bearing on the matter as well as any other responsive documents. Icon never responded. Instead, on July 14, 2017, Icon filed a motion for summary judgment, and on August 3, 2017, Icon's local counsel wrote a letter stating, "I hereby certify pursuant to V.R.C.P. 26(g) that Icon has provided all documents responsive to [Trevor]'s Request for Production to the best of my knowledge." The trial court struck Icon's motion for summary judgment on the ground that it was filed in violation of the discovery order and Vermont Rule of Civil Procedure 56(b).

         ¶ 9. The trial court scheduled the jury draw and set the case for trial in March 2018, with a final pretrial conference on November 1, 2017. After the pretrial conference, Icon moved for reconsideration of the court's order striking its motion for summary judgment, which the trial court denied on December 8, 2017.

         ¶ 10. On December 12, 2017, Icon produced 111 pages of additional documents, which it represented had been "recently uncovered," though some of the documents, on their face, appeared to contradict that statement. After this production, Trevor moved for spoliation sanctions. On January 11 and 18, 2018, before the court ruled on Trevor's first motion for sanctions, Icon produced over 3300 pages of additional documents in conjunction with its opposition to Trevor's motion for spoliation sanctions. Trevor then filed a second motion for sanctions on January 25, 2018.

         ¶ 11. Icon's responses to Trevor's sanction motions admitted that there was "no excuse" for Icon's failure to produce all requested documents in discovery and represented that Icon's local counsel had been "communicating with Icon's management team and IT personnel and urging Icon to conduct further investigation into whether it had produced all that [Trevor] had requested long before" the court struck Icon's summary judgment motion. Later in the proceedings, Icon's local counsel explained that Icon knew about the documents, stating that initially "they chose not to turn those over," but eventually "did so after they were implored to turn over everything that they had."

         ¶ 12. The trial court issued two written orders regarding Trevor's motions for sanctions. In its order on the first motion, the trial court sanctioned Icon by excluding the 111 documents disclosed on December 12 and noted that it found Icon's characterization of its conduct as mere oversight unpersuasive.

         ¶ 13. In its order on the second motion, the trial court accepted that the failure to disclose did "not appear to be with Icon's local counsel," but found that "Icon [did] not come forward with an explanation for how it could have allowed its attorneys to certify pursuant to V.R.C.P. 26(g) that Icon had produced all documents responsive to [Trevor]'s discovery requests, when it very obviously had not." The court further explained that "Icon [had] provided no information to the court as to what, if any, efforts its officers and employees [had] made over the past two years to locate, identify and produce documents requested in the course of discovery" and made no effort "to refute the inference . . . that Icon's failure to produce these documents until two months before trial was intentional, rather than merely negligent." The trial court was "convinced that Icon blatantly disregarded its discovery obligations, and deliberately withheld responsive discovery until almost two years after it was due, in the hope that it would win its summary judgment motion and never have to produce them at all." It also noted that it "appear[ed] that Icon produced the latest batch of documents in January 2018, in an effort to avoid the spoliation sanctions that [Trevor] had requested in her first motion for sanctions, which she had filed the month before." The trial court found that the delays had prejudiced Trevor and undermined her ability to prove her claims at trial because it was "unreasonable to expect" that Trevor's counsel could "adequately digest nearly 3500 pages of newly-discovered documents in time to be able to use them meaningfully at the upcoming trial." It also found that the delayed production had deprived Trevor "of the ability to ever use them in any depositions or to ever make them available for effective use by the expert witnesses whom they have retained and disclosed."

         ¶ 14. The trial court's second sanctions order therefore: (1) excluded the documents disclosed by Icon on January 11 and 18; (2) entered judgment by default against Icon on all of Trevor's claims of liability; (3) struck the affirmative defenses that Icon had asserted as to Trevor's liability claims; and (4) ordered Icon to pay Trevor reasonable expenses, including attorney's fees, caused by its violations of its discovery obligations. It also clarified that its order on the second motion "shall not preclude Icon from: defending itself at trial against [Trevor]'s claim that Icon's acts and omissions caused her to suffer the damages that she alleges she has incurred; defending itself at trial against [Trevor]'s claim for punitive damages; or pursuing its indemnity claims at trial."

         ¶ 15. Icon filed a motion to reconsider with a request that the court hold an evidentiary hearing. It had not made this request prior to the court's second sanctions order. The trial court denied Icon's motion to reconsider and to hold an evidentiary hearing based on Icon's offer of proof-it reasoned that even if it had conducted proceedings to hear Icon's proposed testimony, it still would have concluded "that Icon's conduct, coupled with the substantial prejudice that [it] had caused to [Trevor], amount[ed] to the kind of gross indifference, flagrant bad faith, and callous disregard of the responsibilities counsel owe[d] to the court and to their opponents that justifies a litigation-ending sanction."

         ¶ 16. Prior to trial, Trevor dismissed her claims against Vermont Modular Homes, Curtis, and Bovier. This left Icon as the only defendant against whom Trevor brought a Consumer Protection Act (CPA) claim. See 9 V.S.A. § 2451. On the first day of trial, the court required that Trevor elect which of the two types of monetary recovery authorized by 9 V.S.A. § 2461(b) she would pursue-damages or "the consideration or the value of the consideration given by the consumer." The court explained that if Trevor elected the "consideration given" recovery, Icon would not be able to avoid liability by proving that the defective modular home had "residual value" and would not be entitled to a set-off for any payments made by the other defendants to settle Trevor's damages claims against them. In pursing the "consideration given" remedy, Trevor would be required to prove the amount of consideration she paid for the modular home, then Icon would have the burden of proving that it received less than the full amount. And further, if Trevor elected the "consideration given" remedy and dismissed all of her other claims against Icon, the court would dismiss Icon's indemnification cross-claims against Osborne Construction, Osborne, and Merusi, who had received none of the consideration and against whom Trevor had asserted no CPA claims. Trevor elected the "consideration given" remedy as her sole claim and remedy against Icon, along with exemplary damages as authorized by § 2461(b), and the court dismissed all of Trevor's other claims and Icon's indemnification claims against Osborne Construction, Osborne, and Merusi.

         ¶ 17. During trial, in order to prove that the amount it received was less than the total amount Trevor paid, Icon proffered additional new documents that had not been disclosed during discovery. Icon admitted that the documents fell squarely under Trevor's discovery requests and that they were not produced during discovery or the post-discovery disclosures. Icon's counsel urged the court that the withholding was not intentional, but that it was a mistake due to "interdepartmental communications" within Icon. The trial court called attention to its second sanctions order, where it noted that it had "no confidence that Icon had produced everything it had" and concluded that "obviously, I was right" because "[i]t does seem that Icon produces things when they need it, not when they're told."

         ¶ 18. In response to these additional disclosures, the court found "that Icon's continuing failure to provide documents that had been requested two years ago had now compromised not only [Trevor]'s ability to prove liability, but also damages." Therefore, the trial court sanctioned Icon by precluding the use of the new documents and expanding the default to include Icon's liability for the full, undisputed amount of consideration Trevor paid for her modular home. This default meant that Trevor's claim for exemplary damages would be the only claim submitted to the jury.

         ¶ 19. At the close of Trevor's case, Icon filed a motion for judgment as a matter of law under Vermont Rule of Civil Procedure 50, which it renewed at the close of all the evidence. The motions argued only that the evidence was insufficient to support an award of exemplary damages. The trial court denied both motions.

         ¶ 20. The jury returned a verdict in favor of Icon on exemplary damages. The court discharged the jury and entered judgment against Icon for the uncontested amount of consideration given by Trevor, $173, 137.41, plus Trevor's costs and attorney's fees. The court denied both parties' various post-judgment motions.

         ¶ 21. Trevor filed a preliminary motion for attorney's fees and costs, first seeking $10, 241.32 in costs. Icon opposed $4232.35 of the costs amount, arguing that those expenses were not recoverable under Vermont Rule of Civil Procedure 54 because that portion consisted of: costs incurred to serve process upon parties other than Icon; costs for copies of documents needed for deposition designations used at trial; additional copying costs; and witness fees which lacked the certification required by 21 V.S.A. § 1553. The trial court agreed that Trevor's costs under Rule 54 were limited to $6008.97 and excluded the contested $4232.35. However, it noted that the excluded $4232.35 might be recoverable as nontaxable costs in connection with Trevor's application for an award of attorney's fees and expenses but deferred "ruling on that issue until such time as [Trevor's] fee application is ripe for decision."

         ¶ 22. It appears that Trevor did not amend or refile a motion for attorney's fees and costs, instead resting on her preliminary motion, in which she sought two separate awards: (1) an award of $440, 757.03 in costs and fees pursuant to the CPA claim and the trial court's judgment; and (2) an alternative award of $310, 886.58 in costs and fees pursuant to the court's second sanctions order, requiring that Icon and Vermont Modular Homes pay Trevor's reasonable expenses, including attorney's fees, caused by their respective violations of their discovery obligations. Trevor made her request in the alternative, arguing that because Icon could challenge the judgment on the CPA claim on appeal, it was therefore appropriate to determine the attorney's-fee award under the sanctions order independent of the judgment on the CPA claim.

         ¶ 23. The trial court ultimately awarded Trevor $314, 003 in attorney's fees plus $25, 235.33 in expenses on her CPA claim. The expenses award included the $4232.35 which the court had excluded from Trevor's motion for costs. The trial court noted that Icon did not challenge any of Trevor's nontaxable expenses.

         ¶ 24. The trial court calculated the lodestar figure based on the hourly rates and the total hours Trevor's attorneys worked on the case. The trial court disallowed the fees associated with the time spent pursuing Trevor's claims against Osborne Construction, Osborne, and Merusi, as well as certain "redundant, excessive, and/or unnecessary work." It then analyzed whether the lodestar figure should be adjusted upward or downward. The court determined that a forty-percent downward adjustment was warranted because "[t]here was nothing particularly difficult, complex, or novel about the one claim on which [Trevor] obtained a judgment against Icon" and because Trevor "prevailed on her CPA claim not on its merits but as a consequence of this court's decision to default Icon on account of its discovery violations." However, the court then determined that a thirty-percent upward adjustment was required based on "Icon's litigation conduct." The trial court reasoned that "Icon's violations of its discovery obligations in this case were so extreme as to warrant the entry of a default judgment against it" and that "[s]uch conduct on Icon's part was not only inexcusable; it also very significantly increased the burden of work that [Trevor]'s counsel had to do in this case."

         ¶ 25. The trial court also held that Trevor was entitled to an alternative award of attorney's fees pursuant to the court's second sanctions order. It concluded that Trevor was entitled to $100, 000 in attorney's fees plus $20, 073 in expenses, which represented the additional fees Icon's misconduct caused Trevor to incur.

         ¶ 26. On appeal, Icon argues that the trial court erred on multiple grounds. First, Icon argues that the default judgments against Icon should be reversed because: (1) the trial court erred in sanctioning both Icon Transport and Icon Legacy because any late production of documents was solely by Icon Legacy, which is a separate entity and party to the suit; (2) the trial court erred in concluding that there was a violation of the duty to supplement under Vermont Rule of Civil Procedure 26(e), which is limited to correction of a written response with new information, and that without a Rule 26(e) violation and without a violation of a specific prior order requiring supplementation, the court had no authority to sanction; (3) default is not a sanction available under Vermont Rule of Civil Procedure 37(c) for a breach of the duty to supplement when there was not a violation of a prior court order; (4) litigation-ending sanctions require special findings based on affidavits or evidence, representations of counsel are not a substitute for such required evidence, and bad intent cannot be presumed, but must be clearly shown; (5) the trial court's ruling is insufficient for this Court to determine that the trial court considered lesser sanctions and the public policy that favors disposition on the merits; (6) the default on damages was erroneous and unwarranted; (7) the trial court applied an erroneous measure of recovery of the "consideration given by the consumer" under the CPA because the outcome resulted in a windfall for Trevor; and (8) the trial court abused its discretion in refusing to reconsider the severity of the sanctions without holding an evidentiary hearing.

         ¶ 27. Second, Icon argues for the reversal of the order dismissing its indemnity claims against Osborne Construction, Osborne, and Merusi because the trial court erred by basing the dismissal on the faulty theory that Icon could not, as a matter of law, obtain indemnity for liability to Trevor for return of consideration under the CPA.

         ¶ 28. Third, Icon argues that the judgment awarding Trevor attorney's fees and expenses must be reversed because the trial court erred: (1) by adjusting the lodestar amount upward thirty-percent due to Icon's litigation misconduct; (2) in its alternative award by finding that and amount of $100, 000 in fees was caused by the discovery violations; (3) in its alternative award of all Trevor's expenses from February 16, 2016 through March 16, 2018 without a finding that these were solely caused by the discovery violation; and (4) in awarding $4232.35 in expenses first claimed in Trevor's reply memorandum.

         ¶ 29. Trevor filed a cross appeal in this matter to advance one argument. That is, if Icon is afforded a new trial on liability or damages, Trevor is entitled to a new trial on all claims and remedies on account of various asserted errors.

         II. Default Judgment Against Icon

         ¶ 30. Vermont Rule of Civil Procedure 37 "provides for sanctions of various degrees of severity. Their imposition is necessarily a matter of judicial discretion." John v. Med. Ctr. Hosp. of __Vt.__, LLC, 136 Vt. 517, 519, 394 A.2d 1134, 1135 (1978). This Court will not disturb such a discretionary decision "unless it is clearly shown that such discretion had been abused or withheld." SynEcology Partners, L3C v. Bus. RunTime, Inc., 2016 VT 29, ¶ 18, 201 Vt. 424, 144 A.3d 343 (quotation omitted). Notwithstanding the broad discretion given, when a trial court imposes litigation-ending sanctions, "it is necessary that the trial court indicate by findings of fact that there has been bad faith or deliberate and willful disregard for the court's orders, and further, that the party seeking the sanction has been prejudiced thereby." John, 136 Vt. at 519, 394 A.2d at 1135. A litigation-ending sanction "cannot be imposed merely as punishment for failure to comply with the court's order." Id. Therefore, where a trial court finds that a party's conduct "evidenced flagrant bad faith and callous disregard of responsibilities counsel owe to the [c]ourt and to their opponents," this Court cannot substitute our "judgment for that of the trial court." Id. at 520, 394 A.2d at 1135 (quotation omitted). We will uphold the trial court's factual findings unless they are unsupported by the evidence or clearly erroneous. See, e.g., Hayes v. Mountain View Estates Homeowners Ass'n, 2018 VT 41, ¶ 13, __Vt.__, 188 A.3d 678 ("A trial court's findings of fact must stand unless, viewing the record in the light most favorable to the prevailing party and excluding the effect of modifying evidence, there is no credible evidence to support the findings." (quotation omitted)). A. Treating Icon Legacy and Icon Transport as Distinct Parties for Sanctions

         ¶ 31. Icon argues that the trial court erred when it sanctioned both Icon Legacy and Icon Transport as a consequence of the delayed production of documents. Icon contends that Icon Legacy and Icon Transport are distinct entities, and thus Icon Transport should not be held responsible for, or sanctioned as a result of, the delayed production of documents because the delayed production was purely Icon Legacy's action. Trevor counters that this argument was not preserved for our appellate review, and furthermore that this claim is unsupported by the record below.

         ¶ 32. We agree that Icon did not preserve this argument below. There is nothing in the record indicating that Icon Transport raised, in either Icon's opposition to Trevor's motion for sanctions or in support of Icon's motions for reconsideration, the argument that Icon Transport should not be sanctioned for misconduct that was purely of Icon Legacy. Furthermore, even if the argument had been preserved, we find the trial court did not abuse its discretion in sanctioning Icon Legacy and Icon Transport jointly. During the proceedings before the trial court, Icon never requested nor represented a distinction between the two entities. Indeed, the record supports the opposite. Throughout the proceedings below, Icon's counsel and other sworn discovery responses consistently referred to both entities jointly as simply "Icon." When producing the additional documents in December 2017 and January 2018, Icon's counsel represented that the documents were being produced by both Icon entities. Moreover, when attempting to defend the delayed productions, Icon's counsel apologized "for the production of discovery material so long after it was requested," and admitted that "[t]here [was] no excuse for Icon's failure to produce all of the requested information on time." Throughout Icon's response to Trevor's motion for sanctions, Icon's counsel did not attempt to distinguish between the two entities, but simply referred to them jointly as "Icon."

         ¶ 33. In light of the record, we find that the trial court did not err when it did not make a distinction between Icon Transport and Icon Legacy-a distinction that Icon ...

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