Country Squire I, Inc. v. RAW LLC (2014)

MEMORANDUM OF DECISION ON MOTION TO STRIKE (# 144)

The defendant, D & H Management Services, LLC (“D & H”), has moved to strike Count Nine of the Revised Amended Complaint, dated September 20, 2013, on the grounds that it is barred by the economic loss doctrine.

Background

This action arises out of a contract between the defendant RAW Construction, LLC (“RAW”) and the plaintiff for roofing work at the plaintiff's condominium complex.   The Revised Amended Complaint contains eight counts against four defendants.   Count One of the Revised Amended Complaint alleges in pertinent part:

4.  On or about October 30, 2009, the Association [Country Squire I, Inc.] and RAW entered into a contract (the “Contract”).

5. Under the terms of the Contract, RAW agreed:  (a) to adequately assess and diagnose existing problems with the roof at the Association's property, (b) to properly develop and recommend appropriate plans to remedy said problems, and (c) to perform and complete, in a good and skillful manner, repairs to and improvements of the roofs of seven buildings at the Association property as set forth in the Contract.

* * * *

12. RAW breached the Contract in one or more of the following ways:

a. by failing to properly assess and diagnose existing problems with the roofs at the Association's property;  and

b. by failing to properly develop and recommend appropriate plans to remedy said problems;  and

c. by failing to perform and complete the work outlined in the Contract in a “good and skillful manner”;  and

d. by failing to use and/or install first-class materials, apparatus, and equipment;  and

e. by failing to perform within the time provided by the Contract.

By Decision dated July 30, 2013, this court struck Count Four of the Amended Complaint of March 15, 2013 on the grounds that it alleged negligence arising out of a contract and was barred by the economic loss doctrine [56 Conn. L. Rptr. 591].

The defendant D & H has moved to strike Count Nine of the Revised Amended Complaint, arguing that the court should view the negligence count against it in the same way it viewed the negligence count against RAW.

Allegations of the Revised Amended Complaint

Counts Eight and Nine of the Revised Amended Complaint are directed at D & H. Both counts incorporate the allegations of paragraphs one through fifteen of Count One, the breach of contract claim against RAW. Count Eight alleges in pertinent part:

16.  At all times between August 1, 2009, and July 31, 2010, the Defendant, D & H Management Services, LLC (“D & H”), was the Association's property manager.   D & H rendered its services pursuant to an agreement with the Plaintiff.   Despite a diligent search Plaintiff has been unable to locate a written contract ․

17.  As part of its responsibilities as property manager, D & H had a contractual duty to the Association to supervise the Association's contractors.

18. As part of its responsibilities as property manager, D & H had a contractual duty to make payment to the Association's contracts only with and upon the authorization of the Association's board of directors.

19. D & H breach its contract with the Association in one or more of the following ways:

a. by failing to adequately supervise RAW, Wiecki and Thibodeau in their repairs to an improvement of the roofs of seven buildings at the Association property;  and

b. by making the final payment to RAW in the amount of $42,000.00 despite the fact that the roofs had not been approved by the Association and despite the fact that D & H had been specifically directed not to make this payment to RAW.

Count Nine alleges in pertinent part:

16.  At all times between August 1, 2009, and July 31, 2010, the Defendant, D & H Management Services, LLC (“D & H”), was engaged by the Association to be the property manager of the Association's property and was paid by the Association for its services as same.

17. As part of its responsibilities as property manager, D & H had a duty of care to the Association to supervise the Association's contractors.

18. As part of its responsibilities as property manager, D & H had a duty of care to make payment to the Association's contracts only with and upon the authorization of the Association's board of directors.

19. D & H breach its duty of care to the Association in one or more of the following ways:

a. by failing to adequately supervise RAW, Wiecki and Thibodeau in their repairs to an improvement of the roofs of seven buildings at the Association property;  and

b. by making the final payment to RAW in the amount of $42,000.00 despite the fact that the roofs had not been approved by the Association and despite the fact that D & H had been specifically directed not to make this payment to RAW.

Discussion of the Law and Ruling

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “In ruling on a motion to strike, the court is limited to the facts alleged in the complaint.”   (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997).   The court construes “the complaint in the manner most favorable to sustaining its legal sufficiency ․ Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied ․ Moreover, [the court notes] that [w]hat is necessarily implied [in an allegation] need not be expressly alleged ․ Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically.”  (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252–53, 990 A.2d 206 (2010).   Nevertheless, “[a] motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, supra, 262 Conn. 498.

The defendant, D & H, argues that the Count Nine alleging negligence fails to state a cognizable cause of action because the economic loss doctrine prohibits recovery in tort when the basis for that tort claim arises from a contract and damages are purely economic.   The Connecticut Supreme Court applied the economic loss doctrine in Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 709 A.2d 1075 (1988).

Until November 12, 2013, there had been no appellate decisions concerning the economic loss doctrine in Connecticut since Flagg.   On that date the Supreme Court released its decision in Ulbrich v. Groth, 310 Conn. 375 (2013), clarifying that its decision in Flagg Energy Development Corp. was not limited only to sales covered by article 2 of the UCC. Id. at 405.

In Flagg, the plaintiffs alleged that certain gas turbine engines they had purchased pursuant to a contract with the defendant were defective.   They brought suit for breach of express and implied warranties, breach of contract, misrepresentation and a violation of CUTPA.   The trial court granted the defendant's motion to strike the misrepresentation count and the count which alleged a violation of CUTPA on the grounds that the plaintiffs were seeking recovery solely for a commercial loss and were limited to their contract remedies under the Uniform Commercial Code.

On appeal, the Supreme Court affirmed the trial court's decision and expressly stated its agreement with the holdings of cases in other jurisdiction that bar such tort claims where the losses alleged are purely commercial and arise out of a breach of contract for the sale of goods.  Flagg, supra, at 153.   The Flagg court cited with approval Duquesne Light Co. v. Westinghouse Electric Corp., 66 F.3d 604, 618 (3d Cir.1995) and Princess Cruises, Inc. v. General Electric Co., 950 F.Sup. 151, 155 (E.D.Va.1996), quoting from the latter case:  “The parties are sophisticated corporations familiar with the type of services rendered, and the consequences of a mechanical failure likely to result from a failure to perform the contract as promised.   The parties were free to allocate the risks, insure against potential losses, and adjust the contract price as they deemed most wise.   This Court sees ‘no reason to extricate the parties from their bargain.’  “ Princess Cruises, supra, at 153–54.

While the Flagg court ostensibly limited its holding to the sale of goods, the Princess Cruises case concerned claims arising from a contract obligating the defendant to perform services.   The court in Princess Cruises relied on the United States Supreme Court decision of East River S.S. Corp v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) where the Court gave the rationale for the economic loss rule:

Contract law, and the law of warranty in particular, is well suited to commercial controversies of the sort involved in this case because the parties may set the terms of their own agreements.   The manufacturer can restrict its liability, within limits, by disclaiming warranties or limiting remedies.   In exchange, the purchaser pays less for the product.   Since a commercial situation generally does not involve large disparities in bargaining power, we see no reason to intrude into the parties' allocation of the risk.

Id. at 872–73, 106 S.Ct. at 230.

The Princess Cruises court further stated:

The economic loss doctrine has since been applied to contracts for repair services, Nathaniel Shipping, Inc. v. General Elec. Co., 932 F.2d 366 (5th Cir.1991), and contracts for services rendered as part of the construction or manufacture of products.   See Employers Ins. of Wausau v. Suwannee River Spa Lines, Inc., 866 F.2d 752 (5th Cir.1989), cert. denied, Employers Ins. Of Wausau v. Avondale Shipyards, Inc., 493 U.S. 820, 110 S.Ct. 77, 107 L.Ed.2d 43 (1989).

Id. at 154.

The plaintiff in Princess Cruises argued that the economic loss doctrine should not apply because the defendant breached a tort duty independent of the contract in that it made certain negligent misrepresentations, relied upon by the plaintiff, which resulted in damages.   The Court observed that:

In International Ore & Fertilizer Corp. v. SGS Control Serv., Inc., 38 F.3d 1279, 1284 (2nd Cir.1994), cert. denied, U.S., 115 S.Ct. 2276, 132 L.Ed.2d 280 (1995), the United States Court of Appeals for the Second Circuit, specifically rejected this argument.

Id.

In International Ore & Fertilizer, the plaintiff, an international trader of fertilizer products, contracted with the defendant to inspect and certify that the hold of a ship chartered to carry its fertilizer was clean, dry and suitable for its purposes.   The defendant failed to properly inspect the ship's hold, but nevertheless certified that the hold was clean and suitable when, in fact, some of the ship's prior cargo remained in the hold and contaminated the plaintiff's fertilizer, rendering it unmarketable.   The Second Circuit reversed the district court's holding that the defendant's certification was actionable in tort as a negligent misrepresentation and stated:

We agree with [defendant] that East River, ... compel[s] the holding that any duty owed by [defendant] to [plaintiff] must be derived from the contract and that the negligent misrepresentation claim, which sounds in tort and entails a duty independent of contract, should have been dismissed.

International Ore & Fertilizer, supra, at 1284.

This Court finds that it also is compelled by the reasoning, if not the specific holding of East River.   As the Court explained in East River, contract law and tort law address fundamentally different concerns.

When a person is injured, the cost of the injury and the loss of time or health may be an overwhelming misfortune, and one the person is not prepared to meet.   In contrast, when a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service ․ Such damage[s] mean simply that the product has not met the customers' expectations, or, in other words, that the customer has received insufficient product value.

Id.

The court in Princess Cruises explained the economic loss rule as follows:

Almost any contract breach can be conceived of in terms of a negligent or intentional tort claim.   When, through the negligence of one of the parties, the subject of the transaction physically injures a person, or damages the property of someone not a party to the contract, the law of tort properly provides a cause of action.   But to permit a party to a broken contract to proceed in tort where only economic losses are alleged would eviscerate the most cherished virtue of contract law, the power of the parties to allocate the risks of their own transactions.

Princess Cruises, supra, at 155.

The overriding rationale for the economic loss doctrine is that imposing tort remedies on commercial contracts improperly and unnecessarily interferes with the legitimate expectations and powers of the parties to allocate their risks.

The economic loss doctrine is routinely applied to eliminate tort claims as a result of construction contracts:

The economic loss doctrine has been well settled in many jurisdictions for over 50 years.   Three rationales have been used to eliminate tort liability based on the economic loss doctrine in construction contracts:  (1) it maintains the fundamental boundaries of tort and contract law by limiting the economic loss arising in construction projects to the remedies provided by the parties' contracts;  (2) the doctrine is essential to the dynamics of the construction arena.   If tort and contract remedies were permitted to overlap, uncertainty and unpredictability in allocating risk would increase and impede future business activity;  and (3) the law of tort is primarily concerned with the protection of persons and property from losses resulting from injury while the policy considerations underlying contract law is the protection of expectations bargained for, such as profits.   Louis R. Pepe and James Budinetz, “The Death Knell of the Economic Loss Doctrine in Connecticut,” 17 CTLA Forum, January/February 1999.

Worldwide Preservation Services, LLC v. IVth Shea, LLC, supra, at 1857.

The plaintiff argues that Count Nine does not refer to any contract.   However, it alleges that it “engaged” D & H to manage its property.   Clearly, but for a contractual relationship, D & H had no common-law duties to the plaintiff.   The motion to strike Count Nine is granted on the grounds that that count alleges claims identical to those alleged in the count for breach of contract.   Allowing such a tort to arise in a management contract like the one at issue where the contracting parties had the ability to address the risks of nonperformance in advance would constitute an unnecessary intrusion by the law of torts into the law of contracts.

By the Court,

Aurigemma, J.

Aurigemma, Julia L., J.