In Jones v. Reda Homebuilders, Inc., the Court of Appeals of Tennessee, at Nashville, analyzed whether the trial court properly denied Plaintiffs’ Motion for Attorney’s Fees based on the language of the construction contract. 2021 WL 2375883, at *1 (Tenn. Ct. App. June 10, 2021). The appellate court additionally analyzed whether the trial court’s award of damages was speculative.

Plaintiffs Frederick and Kimberly Jones (“Plaintiffs”) entered into a “New Construction Purchase and Sale Agreement” (the “Contract”) with the Defendant home builder, Reda Homebuilders, Inc. (“Reda”), on or about April 21, 2014. Reda provided Plaintiffs with a one-year builder’s warranty at closing. Within the applicable one-year warranty period, Plaintiffs discovered numerous defects in the construction of the home and brought suit against Reda for breach of contract, breach of warranty, and negligence.

Plaintiffs moved into the home in July 2014 and, within sixty days, noticed water intruding into the basement of the home. Reda performed repairs; however, the water problems were not completely resolved and presented again in April 2015. In a second attempt to address the problem, Reda removed the concrete garage floor, exposed the foundation, and discovered that the foundation under the garage, which formed a portion of the basement walls, had not been waterproofed. Reda additionally dug up the exterior foundation and applied damp-proofing material. When water issues recurred again in May 2015, the Plaintiffs hired a structural engineer to assess the problem.

Plaintiffs filed suit on March 31, 2016, alleging that Reda failed to construct the home in a workmanlike manner. After a rejected offer of judgment by Reda to repurchase the home from Plaintiffs and a failed attempt at mediation, the case proceeded to trial in September 2019. The trial court entered its memorandum and order granting judgment for Plaintiffs in the amount of $125,343.00 on their breach of contract and negligence claims on December 19, 2019. Thereafter, Plaintiffs filed a Motion for Attorney’s fees in the amount of $50,380.00 and discretionary costs of $4,602.25 based on Paragraph 25 of the Contract addressing defaults. The trial court awarded Plaintiffs the discretionary costs, but denied their Motion for Attorney’s Fees. Plaintiffs appealed the denial. On appeal, Reda raised the issue of whether the amount of damages awarded was speculative and not recoverable.  

The Court of Appeals of Tennessee first addressed Reda’s argument that the damages awarded by the trial court were speculative. In the trial court, Reda did not dispute that Plaintiffs suffered damages due to defects in the home. Thus, only the amount of damages was disputed. The trial court enumerated the specific building defects the Parties agreed on, as well as the areas of disagreement between the Parties. Neither Party disputed the trial court’s findings concerning the defects the Parties agreed on and those they did not.

The appellate court reviewed the testimony of the Parties’ experts and the trial exhibits and found the award of damages was within the range of reasonableness based on the extent of the defects, known costs of necessary repairs, and likely incidental and ancillary costs associated with those repairs. Thus, the Court of Appeals of Tennessee found the damages were certain in the case and there was sufficient evidence to support the trial court’s reasoning and entry of judgment of $125,343.00 in damages for Plaintiffs.

The Court of Appeals of Tennessee then analyzed whether the trial court properly denied Plaintiffs’ Motion for Attorney’s Fees. Section 25 of the Contract stated as follows:

“25. Default. Should Buyer default hereunder, the Earnest Money shall be forfeited as damages to Seller and shall be applied as a credit against Seller’s damages. Seller may elect to sue, in contract or tort, for additional damages or specific performance of the Agreement, or both. Should Seller default, Buyer’s Earnest Money shall be refunded to Buyer. In addition, Buyer may elect to sue, in contract or tort, for damages or specific performance of this Agreement, or both. In the event that any party hereto shall file suit for breach or enforcement of this Agreement (Including suits filed after Closing which are based on or related to the Agreement), the prevailing party shall be entitled to recover all costs of such enforcement, including reasonable attorney’s fees.”

The appellate court analyzed the provision using general rules of contract interpretation. The appellate court emphasized the use of the term “shall” in the final sentence of the provision and noted that Tennessee courts ordinarily construe the use of the term “shall” as mandating an action, rather than allowing discretion. Jones, 2021 WL 2375883, at *6 (holding that the use of the term “shall” in the provision “indicates that the award of attorney’s fees to the prevailing party is mandatory”) (citing Myers v. AMISUB (SFH), Inc., 382 S.W.3d 300, 308 (Tenn. 2012)). Thus, the appellate court found the Plaintiffs would be entitled to an award of attorney’s fees if they were considered the “prevailing party.”

Tennessee courts have defined a “prevailing party” as a party who succeeds on a significant claim or issue and is afforded a substantial measure of the relief sought or achieves some of the benefit they sought in bringing the suit. See Daron v. Dep’t of Corr., 44 S.W.3d 478, 481 (Tenn. 2001); Fannon v. City of LaFollette, 329 S.W.3d 418, 431 (Tenn. 2010). The Court of Appeals of Tennessee found that, although Plaintiffs did not receive the full amount of damages they sought, they received a significant award. Further, Reda conceded there were numerous building defects in the home which evidences it breached the contract and the warranty. The appellate court therefore reversed the trial court’s denial and remanded the case for a determination of reasonable attorney’s fees based on the finding that, under the plain language of the Parties’ Contract, Plaintiffs were entitled to attorney’s fees as the prevailing party. This case serves as an example of how Tennessee courts will construe the language of provisions in construction contracts addressing the award of attorney’s fees.