Housing 21 v. Atlantic Home

CourtCourt of Appeals for the Eighth Circuit
DecidedMay 16, 2002
Docket01-1893
StatusPublished

This text of Housing 21 v. Atlantic Home (Housing 21 v. Atlantic Home) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Housing 21 v. Atlantic Home, (8th Cir. 2002).

Opinion

United States Court of Appeals FOR THE EIGHTH CIRCUIT ______________________

Nos. 01-1893NI, 01-1957NI ______________________

Housing 21, L.L.C., * * Appellee/Cross-Appellant, * * v. * On Appeal from the United * States District Court * for the Northern District Atlantic Home Builders Company, * of Iowa. also known as Champion Home * Builders Company, * * Appellant/Cross-Appellee, * ___________

Submitted: February 13, 2002 Filed: May 16, 2002 ___________

Before WOLLMAN, RICHARD S. ARNOLD, and BYE, Circuit Judges. ___________

RICHARD S. ARNOLD, Circuit Judge.

Defendant Atlantic Home Builders Co., a factory builder of manufactured and modular houses, appeals a jury verdict awarding $435,411.79 in damages to Plaintiff Housing 21, LLC, a real estate developer, for breach of warranty. Housing 21 purchased six modular houses from Atlantic as part of the initial phase of its plan to develop a residential subdivision of 120 such houses in Sioux City, Iowa. The project failed, and Housing 21 sued Atlantic, contending that the six houses that Atlantic provided were not well constructed and that Atlantic’s failure to provide well-constructed houses caused the failure of the entire project. A jury returned a verdict in favor of Housing 21, granting damages for the cost of repair of the six houses, $5,411.79, and for Housing 21's lost investment, $430,000, but not for Housing 21's lost future profits or other incidental damages.

In this appeal, Atlantic argues, first, that the District Court erred in responding to a question from the jury asking for a list of investors in Housing 21. It contends that the identity of Housing 21's investors was irrelevant and that providing such information to the jury was unfairly prejudicial. Second, it argues that Housing 21 failed to establish that defects in the six houses caused, in fact, the failure of the entire project, and, as a result, that the Court erred by not granting judgment as a matter of law in its favor regarding damages for lost investment. Third, it argues that the Court erred by giving jury instructions on damages for both lost investment and lost future profits. In a cross appeal, Housing 21 contends that the Court erred by not awarding it, as a matter of law, damages for lost future profits and that the Court erred in allowing Atlantic to make an improper summation, which, it argues, resulted in the jury’s not awarding damages for lost future profits.

Finding Atlantic’s first argument meritorious, for reasons we explain below, we reverse and remand for a new trial.

I.

We set forth the facts in the light most favorable to the jury’s verdict. See Moysis v. DTG Datanet, 278 F.3d 819, 822 (8th Cir. 2002). Housing 21 is a limited liability company that was formed by Robert Bjerke, a lawyer with a background in real estate development, for the purpose of building an affordable housing development of 120 modular houses, called Riverview Estates, in Sioux City, Iowa. Bjerke understood that he needed to provide modular houses of high quality both to

-2- ensure success in the market and to allay community fears that the development would be a “trailer park.”

To finance the project, Bjerke contributed $150,000 of his own money, and Housing 21 received a $400,000 equity investment from eleven investors, including five charities: the Boys Club of Sioux City, Girls Incorporated of Sioux City, the Ronald McDonald House of Charities, the Boys and Girls Home of Sioux City, and the Council on Sexual Assault and Domestic Violence. Housing 21 also received a loan from Norwest Bank. Bjerke hired an experienced construction coordinator, oversaw site work, and advertised the project through direct mailings and in the local media.

Bjerke was familiar with Atlantic’s houses, having used them in a previous project. In December 1995, he visited Atlantic’s Central City, Nebraska, manufacturing plant and spoke with a salesperson about purchasing houses for Riverview Estates. Atlantic warranted that its houses would comply with the Uniform Building Code (UBC) and that they would be of high quality and ready for immediate occupancy. Atlantic stressed the similarity between its manufactured and modular houses and houses built on site. As a result, Bjerke decided to use Atlantic’s houses for the project.

In June 1996, Atlantic and Housing 21 entered into a manufacturer-dealer relationship for the sale of modular houses. Atlantic was aware of the planned scale of the Riverview Estates project. On July 1, Housing 21 placed an initial order for the purchase of three houses from Atlantic. Atlantic constructed the houses and had them delivered in mid-July.

Problems with the houses were apparent immediately. On July 22 and July 25, 1996, Housing 21 sent letters to Atlantic complaining about the quality of the houses it had received. Substantial repair work had to be done to prepare the houses for an

-3- August 1 showing for local dignitaries. At the showing, a representative from Atlantic assured Housing 21 that future houses would be of superior quality. On August 3, Housing 21 opened the houses for public viewing. Although it could show the houses, it was unable to sell them because of difficulties obtaining occupancy permits from Sioux City.

Housing 21 ordered a second group of three houses in mid-July 1996, and Atlantic had them delivered in late August. Again, Housing 21 was dissatisfied with the quality of the houses. On August 23, it sent a letter to Atlantic complaining about the poor quality of the houses and listing needed repairs. That fall, repair work on these houses was performed. A dispute arose between Housing 21, Atlantic, and city inspectors over whether the houses conformed to the UBC. Various Sioux City inspectors found the houses not to conform in numerous respects, and the city refused to issue certificates of occupancy. (Ultimately, it was determined that the city inspectors were not applying the UBC correctly, and that the houses failed to conform only in respect to the thickness of the sheet metal used in the duct work of the heating and cooling systems.)

On January 14, 17, and 20, 1997, Atlantic service technicians corrected the duct work, and Sioux City finally issued certificates of occupancy on January 23. However, problems with the houses persisted. Atlantic service technicians spent February 17 through 26 repairing the houses. Housing 21's own personnel had to spend substantial time doing repairs. Finally, some seven months after the first houses were delivered, sales were not able to support debt service, and the project failed.

On May 5, 1998, Housing 21 brought suit against Atlantic in an Iowa state court, claiming that the poor quality of the houses and their nonconformance with the UBC caused lengthy delays, an ongoing need for repairs, Housing 21's plummeting reputation, and a nearly empty development, and thus caused the failure of the entire

-4- project. Atlantic removed the case to the United States District Court for the Northern District of Iowa. The case was tried from October 10 to October 23, 2000. At trial, Housing 21 presented evidence of numerous problems with the houses, including plumbing leaks, wavy joists, bowed window sills, wavy vinyl siding, walls that were not level or connected, toilets not bolted to the floor, disconnected cabinet doors, improperly installed cabinet tops, improperly installed entertainment centers, warped flooring, miscut linoleum, loose, mismatched, and missing molding and trim, mislaid carpet, and improperly cut doors.

On October 23, 2000, the jury returned a verdict in favor of Housing 21, awarding it $435,411.79 in damages. This appeal followed.

II.

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