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Fourth Circuit Court of Appeals Vacates Jury Verdict for Plaintiffs’ Failure to Demonstrate Foreseeable Damages in Real Estate Transfer

Primoff v. Warfield
No. 11-1988 (4th Cir. Oct. 11, 2012)
by Wayne Heavener, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Primoff v. Warfield, the United States Court of Appeals for the Fourth Circuit vacated a jury verdict in favor of plaintiffs in a land transfer case, finding that plaintiffs had failed to demonstrate foreseeable damages in a claim for breach of contract and warranty against defendants. Issuing a per curiam opinion, the court found that plaintiffs failed to adequately show that defendants’ actions caused a foreseeable diminution in the value of plaintiffs’ land. As a result, plaintiffs were only entitled to the costs of nullifying an encumbrance that the defendants placed upon the plaintiffs’ land, instead of the entire jury verdict awarding plaintiffs damages for breach of contract and warranty claims. Therefore, the Court of Appeals vacated the total jury verdict in favor of plaintiffs, remanding the case with instructions to enter a verdict including only those legal costs expended by plaintiffs in lifting the encumbrance.

Edward and Suzanne Primoff owned a 194 acre farm in Maryland. In November 2002, the Carroll County Planning and Zoning Commission approved a plan for the “Freedom Hills Farm,” on approximately 60 acres of the Primoffs’ farm, which included a provision allowing the Primoffs to retain 128 acres that contained their home and other buildings (“resulting lands”). In December 2002, the Primoffs contracted with Kennard Warfield, Jr. to develop the land. The Primoffs transferred the entire parcel to Mr. Warfield for five (5) years in exchange for $3.5 million, equitable title, and exclusive possession of the resulting lands. During those five (5) years, Mr. Warfield was permitted to make only minor changes. Mr. Warfield conveyed the land to himself and his wife, Mary Warfield. The Warfields recorded the plat and granted Carroll County a “flood plain easement” running along a pre-existing flood plain area. Regulations promulgated by the Federal Emergency Management Agency imposed stricter restrictions on the flood plain easement than the area had been previously subjected, prohibiting building, horseback riding, picnicking, or maintaining trails on the flood plain; the Primoffs had regularly engaged in all of these activities before conveying the land. When the Primoffs’ attorney learned of the flood plain easement, he asked the Warfields to record a special warranty deed, guaranteeing no encumbrances on the parcel. The Warfields complied, and Mr. Primoff threatened legal action if the easement remained in effect.

In 2005, the Primoffs conducted an auction on the resulting lands and personal property on the farm. They did not tell the auctioneer about the easement; rather, the Primoffs intended to decline every bid on the property, have the easement removed, and then contact the bidders to sell the property free of encumbrances. The auction drew a high bid of $5.2 million dollars, which the Primoffs declined without further inquiry. Later in 2005, an appraiser valued the lands at $4 million dollars, but it was unclear whether the appraiser was aware of the flood plain easement. In 2008, a second appraiser valued the land at $3 million dollars consistent with leveling land values, and did not take the easement into consideration. In the mean time, the Primoffs brought an action against Carroll County to remove the flood plain easement. The Primoffs ultimately expended $24,000 in nullifying the easement.

In 2007, the Primoffs sued the Warfields in the United States District Court for the District of Maryland, alleging that the Warfields had breached their contract by adding the flood plain encumbrance, and thereby diminishing the value of the property. The Primoffs also asserted that the Warfields violated the special warranty to keep the land free of encumbrances. Among those defenses raised by the Warfileds was a failure by the Primoffs to mitigate their losses by at least approaching the $5.2 million dollar bidder at auction. At the close of the Primoffs’ case-in-chief, the Warfields moved for judgment as a matter of law, arguing that the Primoffs failed to bring forth testimony that the flood plain easement had actually diminished the property’s value. The Warfields also maintained that the Primoffs failed to mitigate their losses. The trial court denied both motions, and permitted the issues to go to the jury. The jury returned a verdict for the Primoffs, awarding the plaintiffs $250,000 on the contract claim and $274,000 on the warranty claim. After the verdict was returned, the Warfields renewed their motion for judgment as a matter of law, and in the alternative moved for remittitur or a new trial. The district court denied all the Warfields’ motions. On appeal to the United States Court of Appeals for the Fourth Circuit, the Warfields did not contest liability, but only the damages awarded. The Warfields argued that the Primoffs failed to prove compensable injury beyond the $24,000 in litigation costs incurred in nullifying the flood plain easement.

The Fourth Circuit Court of Appeals agreed with the Warfields, and found that the district court erred in denying the Warfields’ motion for judgment as a matter of law. The court held that the evidence adduced at trial was insufficient to demonstrate either diminution of value or lost profit damages. The Primoffs failed to show that they actually intended to sell their land, and thereby failed to show any foreseeable collateral lost profits. The court found it insufficient that the Primoffs’ land would be subject to sale at some undetermined point in the future. Furthermore, the Primoffs failed to demonstrate that the easement proximately caused any lost profits. Though the Primoffs offered two appraisals of the land, neither were made with knowledge of the easement. Therefore, the court reversed the district court’s denial of the Warfields’ motion, vacated the jury verdict, and remanded with instructions to enter a $24,000 judgment in favor of the Primoffs.