Avoiding the Septic Storm

In a recent victory, Smith Freed Eberhard skillfully maneuvered around challenging facts to secure a favorable jury verdict on behalf of our clients.

The Background

This case is all about septic systems. SFE’s client owned a mobile home park in Vancouver, Washington that was sold to a private party as an investment property. Each lot was serviced by a separate septic tank. The seller, at the request of the realtor, had each of the septic tanks inspected to meet the County’s requirement for a pre-sale septic inspection. All of the 40-year-old septic systems passed with flying colors. The buyer was otherwise responsible for performing all due diligence in association with the sale. The purchase price was $1,000,000. Shortly after the sale closed, however, complications began to arise. The buyers purportedly began to receive numerous complaints about the septic systems overflowing and sewage backing up into the yards of the reporting tenants. There were allegations of “illegal overflow pipes.” After the buyer had the septic systems inspected by a different inspector, fourteen septic systems were replaced at the cost of almost $300,000. A lawsuit was filed shortly thereafter. The plaintiff sought to recover the replacement cost of the septic systems, plus attorney fees, alleging that the seller breached the contract by concealing defective septic systems. Plaintiff also alleged that the seller negligently or intentionally failed to disclose that the septic tanks were failing in the sale. It was at this time that SFE was hired to defend the seller.

Pre-Trial

SFE sought to present a reasonable offer to settle the matter, in order to avoid risk and to save our client the cost of litigation. At a mediation that took place prior to any substantial discovery, the buyer and inspector collectively offered $150,000 to settle all claims. The offer was later made in the form of an Offer to Allow Judgment to potentially avoid attorney fee exposure later. The buyer declined the offer and refrained from making a settlement demand until just a couple of weeks before trial, when they offered to settle the case for almost $500,000. The case was continuing to look worse and worse for SFE’s clients.

Discovery

Plaintiff buyer produced a litany of salacious and potentially damaging evidence in his effort to hold defendant seller liable for the costs he incurred in replacing the septic systems. Plaintiff had his inspector record video of raw sewage in a heavy rainstorm which was played at trial. Plaintiff produced declarations from many of the residents of the park purporting to prove that Defendant knew of the deficient septic systems for years before the sale. Taken together, the evidence produced by Plaintiff painted an unflattering picture. Bruce, however, knew that the picture Plaintiff was attempting to paint was wrong and all he needed to do was convince a jury of that fact.

The Strategy 

SFE knew that he had to develop good themes to avoid the storm that was brewing underneath the mobile park home. To that end, he developed three. First, Bruce wanted to make sure that the trier of fact understood that the buyer was required to perform his own due diligence in relation to the septic tanks before the sale. Second, SFE sought to develop testimony from the residents of the mobile home park showing that the seller did not have significant prior notice of complaints and/or issues with the septic system before selling the park. Third, SFE knew he needed to establish that the buyer purchased the mobile home park as an investment, and, despite the cost of replacing the septic tanks, the buyer received an excellent return.

The Trial

As far as trials go, this one did not start out perfectly. Several witnesses put on the stand were given grand opportunities to support the buyer’s case, with testimony and evidence being put on that was negative for SFE’s case. Nonetheless, SFE was able to obtain several important wins. First, SFE was able to utilize the testimony of the realtor to prove that there was no conspiracy between the seller and the inspector in relation to selling the park just prior to multiple failures and that, in fact, the 40-year-old systems were already 10 years beyond an average life span at the time of sale. Second, SFE was able to again utilize the realtor’s testimony to prove to the jury that the realtor had advised the buyer to perform his own due diligence and to talk with the septic inspector if there were questions. Third, SFE obtained testimony from the buyer that the mobile home park had been appraised at $1,780,000 just a couple of months before trial, proving the investment was a good one.

The Outcome

Utilizing the favorable testimony developed at trial, SFE was able to secure a defense verdict on two of the three claims against our client. On the final negligent misrepresentation claim, the buyer was awarded only $55,000. There was an attorney fee provision in the purchase contract and the buyer sought over $200,000 in attorney fees. However, SFE was able to convince the court that the buyer was not the prevailing party and, accordingly, no attorney fees were due. Plaintiff recovered almost $100,000 than they had been offered two years prior to trial. Overall, this case had the potential to be a big stinker, but Bruce turned it into a sweet success for our client.