SHIRLEY (DANIEL J.), ET AL. VS. THE ESTATES AT WIEDEMANN MANSION, LLC , ET AL.
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RENDERED: AUGUST 14, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-000880-MR
DANIEL J. SHIRLEY; DANIEL C. LAKAMP
AND NEWPORT KEY PROPERTIES, LLC
v.
APPELLANTS
APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE JULIE REINHARDT WARD, JUDGE
ACTION NO. 05-CI-01360
THE ESTATES AT WIEDEMANN MANSION, LLC
AND STEGMAN HOLDINGS, LLC
APPELLEES
AND
NO. 2007-CA-001031-MR
THE ESTATES AT WIEDEMANN MANSION, LLC
v.
CROSS-APPELLANT
CROSS-APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE JULIE REINHARDT WARD, JUDGE
ACTION NO. 05-CI-01360
NEWPORT KEY PROPERTIES, LLC
CROSS-APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: KELLER AND THOMPSON, JUDGES; KNOPF,1 SENIOR JUDGE.
THOMPSON, JUDGE: The appellants, Daniel J. Shirley, Daniel C. Lakamp, and
Newport Key Properties, LLC, (NKP) appeal from a judgment entered following a
jury verdict in favor of appellees, The Estates at Wiedemann Mansion, LLC
(EWM) and Stegman Holdings, LLC.2 Appellants contend that the trial court’s
instructions to the jury erroneously stated the law applicable to civil fraud and
warrant reversal. Appellee’s cross-appeal alleges that they were entitled to a
directed verdict because appellants failed to establish the elements of fraud by
omission. They further contend that the trial court erroneously admitted the
testimony of appellants’ expert. We agree with appellees that any errors in the
instructions were harmless because appellants failed to demonstrate by clear and
convincing evidence that appellees failed to disclose a material fact and, therefore,
affirm.
The events leading to the present controversy began in September
2003, when appellants became interested in constructing a home in a new
residential development in Newport, Kentucky, owned by EWM. At that time, the
site preparation had begun and plans were made to enter the development into the
1
Senior Judge William L. Knopf sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
2
Stegman Holdings, LLC is a holding company owned by Jim Stegman. We refer to Jim
Stegman, Jim Stegman Construction, Inc. and Stegman Holdings, LLC as Stegman.
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Homebuilders Association Citifest Home Show. The multi-million dollar
development was to be located on a hillside adjacent to the historic Wiedemann
Mansion and the planned homes would have panoramic views of the Newport
Basin, Ohio River, and Cincinnati.
Appellants met with Dale McPherson, the managing member of
EWM, to discuss buying a lot and constructing a home on the upper tier. After
appellants expressed concern that homes on the lower tier could impede the view
from their home constructed on the upper tier, they were assured that only two
story homes would be constructed on the lower tier. The Development’s
unrecorded “Declaration of Codes, Covenants, and Conditions” (declaration)
stated:
No home shall be permitted to block the view of an
uphill home above a distance of 30 feet from the curb
elevation to the peak of the roof.
Ultimately, the declaration was altered.
The civil engineer and geotechnical engineer concluded that because
of the potential for landslide activity, reconstruction of the hillside to accommodate
the original twenty-five lots planned was not possible and the development was
reduced to thirteen lots. Additionally, the elevation of the lower tier was decreased
by twelve feet because of its relocation to the north twenty-five feet.
Consequently, the final version of the declaration replaced the unrecorded version
shown to appellants when they initially expressed interest in the property. Central
to the present controversy, the height restrictions for Lots 12 and 13, which lay
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directly in front of appellants’ lots, were increased by ten feet permitting the lots to
accommodate homes and landscaping forty feet in height. The recorded
declaration was filed of record on March 11, 2004.
Subsequently, appellants again met with McPherson and expressed
interest in Lot 8 and their desire to have McPherson construct their home.
However, because the Development was included in the Citifest Home Show, a
lottery was in place to determine which builder could build on each lot. Jim
Stegman Construction, Inc. which had first choice of the lots purchased Lot 8. On
May 3, 2004, appellants purchased Lot 8 from Stegman Holdings LLC, and, on
July 2, 2004, purchased Lot 7 from EWM.
According to appellants’ home design, Stegman was contracted to
construct a home on Lot 8 and an enclosed pool structure attachment to the
residence on Lot 7. Appellants allege that Stegman consistently informed them
that the clear panoramic view would not be substantially impeded by the lower tier
homes because of the design of their planned home. Further, they contend that
prior to their purchase of the lots, neither Stegman nor EWM informed them that
the height restrictions of the lower tiered homes had increased in the final recorded
declaration. However, the lot closing statement for the purchase of Lot 8 stated
that appellants “acknowledge receipt of the Recorded Declaration of Covenants,
Conditions, and Restrictions for the Estates of Wiedemann Mansion.”
Construction was completed on the home and attached pool enclosure
in May 2005. At that time, no homes were built on Lots 12 or 13 and the view was
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unobstructed from all four levels of the residence. However, in the summer of
2005, Stegman began building a home on Lot 12 and another construction
company began building on Lot 13. When it became apparent to appellants that
the homes were going to be three stories high and taller than the thirty-foot height
restriction in the initial declaration, the appellants inquired and learned that the
recoded declaration had a forty-foot height restriction for the lower tier homes.
Appellants later learned that McPherson and Stegman were aware of the change.
Appellants initiated this action against appellees for fraud, negligent
misrepresentation and punitive damages. Specifically, appellants alleged at trial
that if they had been aware of the increased height restriction that the first floor of
their home would have been constructed differently to provide an enhanced view
or used as storage. After the property was transferred to NKP, the complaint was
amended to add it as a third plaintiff. Subsequently, the complaint was again
amended to assert a claim for fraud by omission. The trial court granted summary
judgment on the claims for negligent misrepresentation and removed Shirley and
Lakamp as plaintiffs because they no longer possessed an interest in the property.
At the pretrial hearing, EWM filed a Daubert motion to exclude the
testimony of appellants’ real estate damages expert, William Bramble, on the basis
that his methodology did not meet the Daubert standard. Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).
After the motion was denied, appellants renewed the motion at trial which was also
denied.
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At the close of appellants’ case, appellees moved for a directed verdict
on the basis that appellants did not prove by clear and convincing evidence that
appellees failed to disclose a material fact. Appellees also argued that the market
value of the property was not diminished as a result of the alleged non-disclosure.
The motions were denied. The case was submitted to the jury which found in
favor of appellees.
Appellants contend that the instructions erroneously required them to
prove that the failure to disclose the change in the height requirements for the
residences on Lots 12 and 13 induced them to purchase Lots 7and 8. Appellants
admit that the non-disclosure did not induce them to purchase the lots but induced
them to build the residence in accordance with the unrecorded declaration and its
requirements that the residences on Lots 12 and 13 be a maximum of thirty feet in
height.
Appellees contend that assuming the instructions were erroneous, they
were entitled to a directed verdict, thus, there could be no prejudice caused by any
alleged error.
The harmless error rule is applicable to appellate review of jury
instructions. When the appellate court determines that a party’s motion for
directed verdict should have been granted and, therefore, there was no issue to be
submitted to the jury, any error in the jury instructions was not prejudicial. Robert
F. Simmons & Associates v. Urban Renewal & Community Development Agency
of Louisville, 497 S.W.2d 705 (Ky.App. 1973). In determining whether the alleged
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errors in the instructions submitted to the jury in this case warrant reversal, we are
guided by two principles, both of which impose a heavy burden upon appellees.
First, it is the general rule that an error in the instructions is grounds
for reversal, unless it affirmatively appears that it was not prejudicial. McKinney
v. Heisel, 947 S.W.2d 32 (Ky. 1997). In McKinney, the court reiterated what has
been repeatedly stated in Kentucky case law:
In this jurisdiction it is a rule of longstanding and
frequent repetition that erroneous instructions to the jury
are presumed to be prejudicial; that an appellee claiming
harmless error bears the burden of showing affirmatively
that no prejudice resulted from the error. See also Drury
v. Spalding, Ky., 812 S.W.2d 713, 717 (1991); Barrett v.
Stephany, Ky., 510 S.W.2d 524 (1974). Prichard v.
Kitchen, Ky., 242 S.W.2d 988 (1951).
Id. at 35.
If the issue presented is whether the instruction was not prejudicial
because the trial court erred when it did not grant a motion for directed verdict,
review is subject to the equally pervasive standard of review applicable to a denial
of a directed verdict as set forth in Lewis v. Bledsoe Surface Mining Co., 798
S.W.2d 459, 461 (Ky. 1990):
All evidence which favors the prevailing party must be
taken as true and the reviewing court is not at liberty to
determine credibility or the weight which should be
given to the evidence, these being functions reserved to
the trier of fact. The prevailing party is entitled to all
reasonable inferences which may be drawn from the
evidence. Upon completion of such an evidentiary
review, the appellate court must determine whether the
verdict rendered is palpably or flagrantly against the
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evidence so as ‘to indicate that it was reached as a result
of passion or prejudice. (Citations omitted.)
Our inquiry is whether appellees were entitled to a directed verdict at the close of
appellants’ case: If so, any errors in the instructions were harmless.
Fraud by omission consists of four elements each of which must be
proven by clear and convincing evidence: (1) a duty to disclose a material fact; (2)
a failure to disclose the material fact; (3) the failure induced the plaintiff to act; and
(4) resulting damages. Rivermont Inn, Inc. v. Bass Hotels Resorts, Inc., 113
S.W.3d 636, 641 (Ky.App. 2003). “A duty to disclose facts is created only where a
confidential or fiduciary relationship between the parties exits, or when a statute
imposes such a duty, or when a defendant has partially disclosed material facts to
the plaintiff but created the impression of full disclosure.” Id. citing Dennis v.
Thomson, 240 Ky. 727, 43 S.W.2d 18 (1931). Because we are convinced that
appellants failed to demonstrate that the alleged nondisclosure was material, we do
not reach the question of whether the remaining elements were satisfied by the
proof presented, including the existence of a duty to disclose or whether the
acknowledgement of the recorded declaration precluded the assertion of
appellants’ claims.
The determination as to whether a fact is material must be examined
on a case-by-case basis. In this case, the question is simply whether the increased
height restriction for the residences on the lower tier was a fact so substantial and
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important that had it been disclosed, appellants would have constructed their
residence differently. We can find no evidence to support such a supposition.
Although it is undisputed that the unrecorded declaration shown to
appellants and the subsequent recorded declaration differed regarding the height
restrictions imposed on the lower tier residences, the elevation of the upper tier
property remained identical while the elevation of the lower tier property was
decreased twelve feet. Thus, it is factually impossible that the increased height
restriction on the lower tier residences caused appellants’ view to be diminished.
Although the record reveals that appellants’ view from the first floor of the
residence is partially impeded by the homes constructed on the lower tier, the
impediment would have been the same or greater had the original unrecorded
declaration been finalized and recorded. Thus, we are compelled to conclude that
appellees were entitled to a directed verdict and that any errors in the instructions
were harmless.
The judgment of the Campbell Circuit Court is affirmed.
KELLER, JUDGE, CONCURS IN RESULT ONLY.
KNOPF, SENIOR JUDGE, CONCURS IN RESULT.
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BRIEFS FOR APPELLANTS:
Mark T. Hayden
Cincinnati, Ohio
BRIEF FOR APPELLEE/CROSSAPPELLANT, THE ESTATES AT
WIEDEMANN MANSION, LLC:
Richard G. Meyer
Crestview Hills, Kentucky
BRIEF FOR APPELLEE, STEGMAN
HOLDINGS, LLC:
Kimberly A. Pramaggiore
Cincinnati, Ohio
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