Opinion
C. A. WC-2013-0629
02-16-2024
CAROLINE FLYNN, VINCENT FLYNN, FLYNN AUTOMOTIVE LLC, AND MALLOY PROPERTIES, LLC, Plaintiffs, v. NAPPA CONSTRUCTION MANAGEMENT, LLC, MOHAMED H. HUSSEIN, P.E., ALBERT E. DEROBBIO, INDEPENDENCE BANK, WILLIAM BRZOZA, AND STEVEN M. NAPPA, Defendants.
For Plaintiff: Patrick J. Dougherty, Esq. For Defendant: John A. Dorsey, Jr., Esq.; Hannah M. Mowry, Esq.; Kevin F. Bowen, Esq.; Dean J. Wagner, Esq.; Thomas W. Heald, Esq.
For Plaintiff:
Patrick J. Dougherty, Esq.
For Defendant:
John A. Dorsey, Jr., Esq.; Hannah M. Mowry, Esq.; Kevin F. Bowen, Esq.; Dean J. Wagner, Esq.; Thomas W. Heald, Esq.
DECISION
TAFT-CARTER, J.
Before this Court for decision is Defendants Steven M. Nappa and Nappa Construction Management, LLC's Motion for Summary Judgment with respect to Counts I, II, VI, VII, and VIII of Plaintiffs' Sixth Amended Complaint as well as the Plaintiffs' objection. Jurisdiction is pursuant to G.L. 1956 § 8-2-14 and Rule 56 of the Superior Court Rules of Civil Procedure.
I
Facts and Travel
This action arises from a dispute involving construction of an automotive repair facility between Plaintiffs Caroline Flynn, Vincent Flynn, Flynn Automotive LLC, Malloy Properties, LLC and Defendants Nappa Construction Management, LLC, Mohamed H. Hussein, P.E., Albert E. DeRobbio, Independence Bank, William Brzoza, and Steven M. Nappa. On September 18, 2012, Caroline Flynn, Vincent Flynn, and Flynn Automotive LLC executed a contract for a commercial construction project with Nappa Construction Management, LLC (Nappa CM) (Construction Contract). (See Docket Ex. A attached to Aff. of Steven Nappa, Sept. 26, 2023 (Nappa Aff.).) Nappa CM served as the general contractor for the commercial construction project. Id. (Construction Contract, AIA Document A101-2007). Pursuant to the Construction Contract, Nappa CM agreed to construct an automotive repair facility. Id.
Service Insurance Company, Inc. (Service Insurance) provided a performance bond on the project to ensure the loan proceeds were dedicated for the completion of the project. (Def. Independence Bank's Mem. in Supp. of Mot. for Summ. J. (Independence Bank's Mem.) Ex. W.) Before the effective date of the bond, Independence Bank, Nappa CM, and Flynn Automotive executed a set-aside agreement for the purpose of ensuring that the loan proceeds were dedicated for the completion of improvements delineated in Nappa CM's proposal. (Independence Bank's Mem. Ex. L.) During construction, Nappa CM submitted five requisition applications for advancement of loan proceeds to Caroline and Vincent Flynn (Flynns). (Nappa Aff. ¶ 19.) Loan proceeds were disbursed for the first three applications and contracts for payment. Id. Requisition one dated September 20, 2012 was disbursed and deposited in the amount of $36,000. Id. The second requisition dated January 18, 2013 was disbursed and deposited in the amount of $85,680. Id. Finally, requisition three dated March 15, 2013 was disbursed and deposited in the amount of $87,466.86. Id.
Disputes arose concerning the flooring and foundation work performed by Nappa CM. In June 2013, the Flynns, through counsel, directed Nappa CM to cease all work on the project. (Independence Bank's Mem. Ex. A, Caroline Flynn Dep. at 175:13-17, Aug. 23, 2022.) Shortly thereafter, on June 25, 2013, Nappa CM submitted requisition four in the amount of $39,655.73. The requisition was not approved by the Flynns or disbursed. (Nappa Aff. ¶ 19.) On July 29, 2013, Nappa CM, through counsel, notified the Flynns they were in breach of the Construction Contract. (Independence Bank's Mem. Ex. II.) On September 1, 2013, Nappa CM submitted requisition five for payment in the amount of $57,034.26. This requisition was not approved and/or disbursed. (Nappa Aff. ¶ 19.) On September 4, 2013, Nappa CM terminated the contract. (Independence Bank's Mem. Ex. II.)
In the interim, on June 13, 2013, the Flynns requested TFI Forensic Consultants, LLC (TFI) to conduct an inspection of the property and building progress. (Pls.' Obj. and Mem. in Supp. of Obj. to Mot. for Summ. J. (Pls.' Obj.) Ex. 3.) On August 12, 2013, TFI concluded that "although the design was appropriate and to code, the execution and inspection levels were sorely lacking." Id. It was further concluded that major repair work to bring the building and surrounding driveways and parking areas to appropriate standards was required. Id. As a result of the TFI report, on or around November 2013, the Flynns engaged Geisser Engineering Corporation (Geisser) to conduct soil probes. (Suppl. Aff. of Steven Nappa, Nov. 30, 2023, ¶ 9.) That report concluded that the "existing slab and structural fill need to be removed." (Pls.' Obj. Ex. 4.)
The original complaint was filed on December 3, 2013. Thereafter, on January 10, 2014, Nappa CM filed a Demand for Arbitration. (Independence Bank's Mem. Ex. DD.) On March 13, 2015, the arbitrator issued an award that was eventually confirmed by the Superior Court on May 22, 2015. See Docket, Order on Mot. to Vacate, filed on May 14, 2015. The decision was appealed to the Supreme Court and, on January 23, 2017, the order confirming the arbitration award was remanded to the Superior Court. Nappa Construction Management, LLC v. Flynn, 152 A.3d 1128, 1135 (R.I. 2017). In an Order dated June 21, 2017, the Honorable Associate Justice Kristin Rodgers granted the Flynns' Motion to Vacate the Arbitration Award and remanded the matter back to the original arbitrator. See Docket, Order, filed on May 30, 2017. Finally, on March 10, 2020, the original arbitrator terminated the arbitration based on mutual agreement of Nappa CM's legal status. (See Nappa Aff., Ex. CC.)
On February 1, 2023, Plaintiffs filed their Sixth Amended Complaint, the operative Complaint. (Sixth Am. Compl.) The Complaint advanced claims against Nappa CM for Breach of Contract (Count I), Negligence (Count II), Fraudulent Misrepresentation (Count VI), and Conspiracy to Commit Fraudulent Misrepresentation (Count VII). Id. ¶¶ 19, 27, 49, 52.
Additionally, Plaintiffs advance claims against Steven Nappa in Counts VI and VII. Id. ¶¶ 42, 52. Although not relevant to this motion, the Sixth Amended Complaint advanced claims against Defendants Mohamed H. Hussein, P.E. and Albert E. DeRobbio for Negligence (Count II), Defendants William Brzoza and DeRobbio for Fraudulent Misrepresentation (Count VI) and Conspiracy to Commit Fraudulent Misrepresentation (Count VII), and Defendant Hussein for Negligent Misrepresentation (Count VIII). Id. ¶¶ 24, 26, 42, 49, 52, 57. Finally, the Sixth Amended Complaint advanced claims against Independence Bank for Negligence (Count III), Breach of Fiduciary Duty (Count IV), and Breach of Contract (Count V). Id. ¶¶ 31, 35, 39.
Defendants Albert E. DeRobbio, Mohamed H. Hussein, P.E., Independence Bank, and William Brzoza are not parties to this Motion for Summary Judgment.
On September 27, 2023, Defendants Steven Nappa and Nappa CM filed the instant Motion for Summary Judgment. (Defs.' Mot. for Summ. J.) Defendants also filed a memorandum of law in support with exhibits attached. (Defs.' Mem. in Supp. of Mot. for Summ. J. (Defs.' Mem.)) Subsequently, on November 10, 2023, Plaintiffs filed an objection with a memorandum of law in support and exhibits attached. (Pls.' Mem. in Supp. of Obj. to Defs.' Mot. for Summ. J. (Pls.' Mem.)) On November 30, 2023, Defendants filed a reply to Plaintiffs' objection. (Defs.' Reply.) On December 11, 2023, Plaintiffs filed a surreply to Defendants' reply. (Pls.' Surreply.) The parties were heard for oral argument in this Court on December 13, 2023.
Plaintiffs have stipulated that summary judgment may enter for Nappa Defendants with respect to Negligent Misrepresentation in Count VIII. (Pls.' Mem. 25.)
II
Standard of Review
A
Motion for Summary Judgment
"'Summary judgment is a drastic remedy, and a motion for summary judgment should be dealt with cautiously.'" Cruz v. DaimlerChrysler Motors Corp., 66 A.3d 446, 451 (R.I. 2013) (quoting DeMaio v. Ciccone, 59 A.3d 125, 129 (R.I. 2013)).
"'Summary judgment is appropriate when no genuine issue of material fact is evident from the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any, and the motion justice finds that the moving party is entitled to prevail as a matter of law.'" Swain v. Estate of Tyre ex rel. Reilly, 57 A.3d 283, 288 (R.I. 2012) (quoting Beacon Mutual Insurance Co. v. Spino Brothers, Inc., 11 A.3d 645, 648 (R.I. 2011)) (internal quotation omitted); see Super. R. Civ. P. 56. "In deciding a motion for summary judgment, [a] [c]ourt views the evidence in the light most favorable to the nonmoving party." Mruk v. Mortgage Electronic Registration Systems Inc., 82 A.3d 527, 532 (R.I. 2013) (citing Beauregard v. Gouin, 66 A.3d 489, 493 (R.I. 2013)).
Moreover, the moving party "bears the initial burden of establishing the absence of a genuine issue of fact." McGovern v. Bank of America, N.A., 91 A.3d 853, 858 (R.I. 2014). (internal quotation omitted). The burden then shifts to the "nonmoving party [who] bears the burden of proving by competent evidence the existence of a disputed issue of material fact and cannot rest upon mere allegations or denials in the pleadings, mere conclusions or mere legal opinions." Mruk, 82 A.3d at 532 (internal quotation omitted). "'[C]ompetent evidence[]' . . . is generally presented on summary judgment in the form of . . . depositions, answers to interrogatories, . . . admissions on file, . . . [and] affidavits.'" Flynn v. Nickerson Community Center, 177 A.3d 468, 476 (R.I. 2018) (quoting Leone v. Mortgage Electronic Registration Systems, 101 A.3d 869, 872, 874 (R.I. 2014)).
III
Analysis
A
Nappa CM's Certificate of Organization
As a preliminary issue, the Plaintiffs raise Nappa CM's capacity to assert any position in this litigation because its certificate of organization was revoked. (Pls.' Mem. 1.) Plaintiffs argue that because the certificate of organization was revoked, Nappa CM no longer exists as a separate entity and therefore has no interest in the subject matter of this litigation. Id. at 7.
Plaintiffs argue that because Nappa CM's certificate of organization was revoked and Rhode Island does not provide a "wind-up" process for Limited Liability Companies (LLC), Nappa CM lacks "standing" to defend this action leaving Steven Nappa personally liable. (Pls.' Mem. 7-8.)
The issue of Nappa CM's "standing" implicates Nappa CM's capacity to defend this action or receive judgment not its "standing" to prosecute an action. Justiciability requires that a plaintiff must have standing (injury in fact) to bring suit and a legal hypothesis which will entitle them to relief. Key v. Brown University, 163 A.3d 1162, 1168 (R.I. 2017). "For questions on standing, the court must focus on the party who is advancing the claim rather than on the issue the party seeks to have adjudicated." Id. at 1168 (internal quotation marks omitted). The distinction is not without a difference as "[a] plaintiff has standing when it is personally aggrieved, regardless of whether it is acting with legal authority; a party has capacity when it has the legal authority to act, regardless of whether it has a justiciable interest in the controversy." Austin Nursing Center, Inc. v. Lovato, 171 S.W.3d 845, 848-49 (Tex. 2005).
Defendants reply that this action was commenced in 2013 and Nappa CM's certificate of organization was revoked on June 8, 2016 leaving the LLC the ability to wind up its affairs pursuant to G.L. 1956 § 7-16-45. (Defs.' Reply 4-5.)
General Laws 1956 § 7-16-45 provides, in relevant part, "the members who have not wrongfully dissolved a limited-liability company may wind up the limited-liability company's business and affairs."
The Rhode Island Secretary of State revoked Nappa CM's certificate of organization on June 8, 2016, pursuant to § 7-16-42. (Pls.' Mem. Ex. 1.) The Rhode Island Limited Liability Company Act (LLC Act) provides enumerated powers to every LLC pursuant to § 7-16-4. Among these are the power to sue, be sued, transact business, make contracts, and to cease its activities and dissolve. See § 7-16-4(1-3), (17). Of note, § 7-16-42(b) which provides for the issuance of certificates of revocation only states that the power of the LLC to "transact business" ceases. The statutes are silent as to whether the LLC maintains certain other powers after revocation, and § 7-16-42 does not mention § 7-16-4.
Some states and federal circuit courts consider the revocation of a certificate of organization an "administrative dissolution." See General Technology Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120-22 (4th Cir. 2004) (LLC considered automatically dissolved when LLC's certificate of operation cancelled for failure to pay annual fee, pursuant to Virginia LLC Act); see also Gale v. Carnrite, 559 F.3d 359, 363 (5th Cir. 2009) (Nevada statutes provided "that after the charter of a limited-liability company is revoked, the property and assets of the defaulting company must be held in a trust by the managers, and dissolution proceedings under other statutes should be pursued."). Several state courts have held that an LLC may prosecute or defend lawsuits during the wind-up process. See Wooster, Construction and Application of Limited Liability Company Acts-Issues Relating to Dissolution and Winding Up of Affairs of Limited Liability Company, 49 A.L.R. 6th 1, § 69 (2009) (collecting cases). In Rhode Island, immediately after the revocation sections in the LLC Act, § 7-16-45(a) provides in pertinent part: "Except as otherwise provided in the articles of organization or operating agreement, the members who have not wrongfully dissolved a limited-liability company may wind up the limited-liability company's business and affairs."
In time, Rhode Island may consider a revocation of a certificate of organization or registration by the Secretary of State an "administrative dissolution." See 2023 RI H.B. 6050 (NS) (March 3, 2023) (Section 7-16.1-708, Administrative Dissolution) (an act to replace existing LLC Act with newer and updated model act); see also 2023 RI S.B. 916 (NS) (March 30, 2023). However, until such time, this Court must rely on the precedent established by our courts.
While the question of whether an LLC is required to maintain a certificate of organization throughout the duration of litigation has not been addressed in Rhode Island, the issue has been addressed with respect to a plaintiff corporation. Custom Metals Systems, Ltd. v. Tocci Building Corp., 57 A.3d 674 (R.I. 2013). In Custom Metals Systems, Ltd., the plaintiff was in good standing when it commenced the civil action. Id. at 675. However, the certificate of good standing was revoked by the Rhode Island Secretary of State before judgment entered. Id. The Supreme Court held that the plaintiff corporation was not required to maintain a certificate of authority throughout the litigation because it had the "appropriate certificate" when it filed suit and it was no longer "transacting business in the state." Id. at 676. However, "a certificate must be obtained prior to proceeding to final judgment." Id.
In the present case, Plaintiffs sued in 2013, three years prior to the revocation of Nappa CM's certificate of organization in 2016. Furthermore, there is nothing on this record to indicate that Nappa CM has continued "transacting business" in the interim. Therefore, Nappa CM is not precluded from defending this suit or having a judgment rendered against it based on the fact that its certificate of organization was revoked during the pendency of this action. Custom Metal Systems, Ltd., 57 A.3d at 676.
Therefore, Nappa CM has capacity to assert its position in this litigation.
B
Arbitration
Defendants next argue that because § 6.2 of the Construction Contract mandates that the method of binding dispute resolution is arbitration, they are entitled to judgment as a matter of law on all Counts. (Defs.' Mem. 20.) Furthermore, Defendants argue Plaintiffs abandoned the contractually agreed arbitration when it stipulated to terminate the arbitration and, as such, are prevented from continuing with this litigation. Plaintiffs argue that vacating the arbitration has no effect on these proceedings. (Pls.' Mem. 8.)
The purpose of arbitration "is to provide a relatively quick, efficient and informal means of private dispute settlement." Westminster Construction Corporation v. PPG Industries, Inc., 119 R.I. 205, 209, 376 A.2d 708, 710 (1977) (citation omitted). "[T]he role of the judiciary in the arbitration process is extremely limited." Purvis Systems, Inc. v. American Systems Corporation, 788 A.2d 1112, 1114 (R.I. 2002) (internal quotation omitted). Our Court's presumption in favor of arbitration "applies only when there is uncertainty about the arbitrability of a dispute-it does not operate to steer disputes into arbitration where . . . the parties have clearly agreed against arbitration." City of Newport v. Local 1080, International Association of Firefighters, AFL-CIO, 54 A.3d 976, 981 (R.I. 2012).
Here, the Construction Contract unambiguously provides for binding dispute resolution in Article 6. (Nappa Aff., Ex. A at 5.) Specifically, § 6.2 of the Construction Contract provided that:
"[f]or any claim subject to, but not resolved by, mediation pursuant to Section 15.3 of the AIA Document A201-2007, the method of binding dispute resolution shall be as follows: (Check the appropriate box. If the Owner and Contractor do not select a method of binding dispute resolution below, or do not subsequently agree in writing to a binding dispute resolution method other than litigation, Claims will be resolved by litigation in a court of competent jurisdiction.)" Id. at 6 (emphasis in original).
Furthermore, the parties selected arbitration as the method of binding dispute resolution pursuant to AIA Document A201-2007; § 15.4 of the Construction Contract incorporated general conditions. Id. Section 15.4 in the general conditions provides that arbitration shall be administered by the American Arbitration Association. Id. at 36. Therefore, based on the unambiguous language of the Construction Contract, the sole method of dispute resolution between the parties for any claim is arbitration pursuant to § 6.2 of the Construction Contract and § 15.4 of the general conditions.
As discussed supra, arbitration was the selected method of dispute resolution by the parties. The Defendants maintain that the Plaintiffs abandoned the contractually mandated dispute resolution process by executing a stipulation, and, therefore, the stipulation terminating the arbitration and, by extension, this litigation is with prejudice. Here, when the arbitration award was vacated and remanded back to the original arbitrator, the parties were given the opportunity to conduct and complete an arbitration with respect to the issues. See Docket, Order, filed on May 30, 2017. During the proceeding, after the award was vacated and remanded, the Flynns elected to raise the legal issue of capacity of Nappa CM. (Nappa Aff., Ex. BB.) That issue is precisely what is presented here, i.e., Nappa CM is not an entity against which a remedy can be enforced. During the arbitration, the arbitrator, Peter Arden, issued a ruling on March 10, 2020 terminating the arbitration based on the parties' agreement that "it does not make sense to continue" with the arbitration. (Nappa Aff., Ex. CC.) As a result, the arbitrator issued the following ruling:
"In its filing, Flynn contends that Nappa is out of business, does not legally exist, and thus is not an entity against which a remedy can be enforced. Nappa disagrees with Flynn's contention, but nonetheless agrees, that, as Nappa is out of business, and has no assets, it does not make sense to continue with the arbitration process. Whereas both parties agree that the arbitration process should not be continued, this Arbitration is hereby terminated." Id. (emphasis added).
The Flynns and Nappa CM agreed with the termination of the arbitration. Thereafter, the Plaintiffs pivoted to the courts for their remedy. Here, the Court has determined that arbitration is the sole method of dispute resolution. A question now arises as to whether the arbitration can be reinstated after its termination.
The question of whether binding dispute resolution providing an arbitration terminated by stipulation is with prejudice is one of first impression. Other courts have addressed the issue of whether a terminated arbitration for failure to provide arbitration fees is with prejudice. In those cases, the court concludes that once an arbitration begins and is then terminated, the parties have exercised their contractual rights to arbitration. See Noble Capital Fund Management, LLC v. U.S. Capital Global Investment Management, LLC, 31 F.4th 333 (5th Cir. 2022). The exercise of those rights is binding.
The court focused on the parties exercising the contractual right to arbitrate, and concluded that, "[e]ven though the arbitration did not reach the final merits and was instead terminated . . . the parties still exercised their contractual right to arbitrate prior to judicial resolution in accordance with the terms of their agreements." Id. at 336. Here, the parties, who were represented by counsel, proceeded to arbitration and concluded that Nappa CM's revocation of certificate of organization and lack of assets were grounds to terminate the arbitration. Unlike termination for failure to pay arbitration fees, this arbitration actually began and was concluded by stipulation.
As the arbitration had begun, it also "has been had." Id. (citing Tillman v. Tillman, 825 F.3d 1069, 1072-74 (9th Cir. 2016)). Regardless of whether the parties agreed Nappa CM did not exist, "[t]here is no arbitration to return this case to and parties may not avoid resolution of live claims through compelling a new arbitration proceeding after having let the first arbitration proceeding fail." Id. This is true even if the termination was based on a mistake of law. See Westminster Construction Corporation, 119 R.I. at 210, 376 A.2d at 711 (finding that mistake of law not grounds for disturbing an arbitration).
The parties contractually agreed upon arbitration as the binding dispute resolution mechanism to resolve any claim. The general conditions incorporated into the Construction Contract define what a claim is in § 15.1.1, which provides in relevant part: "A Claim is a demand or assertion by one of the parties seeking, as a matter of right, payment of money, or other relief with respect to the terms of the Contract. The term "Claim" also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract." (Nappa Aff., Ex. A at 35.) The claims advanced in the Sixth Amended Complaint relate to or arise out of the parties' conduct with respect to the Construction Contract. The parties were free to select "other" as their binding dispute resolution but chose to go with arbitration. "It is a basic tenet of contract law that the contracting parties can make as good a deal or as bad a deal as they see fit[.]" Durfee v. Ocean State Steel, Inc., 636 A.2d 698, 703 (R.I. 1994) (internal quotation omitted).
Therefore, Defendants' Motion for Summary Judgment with respect to all Counts is granted.
C
Defendants argue that summary judgment should be granted because Plaintiffs spoliated evidence in this case. (Defs.' Mem. 4; Defs.' Reply 4.) A jury instruction is the typical remedy for spoliation of evidence and "'the doctrine of spoliation merely permits an inference that the destroyed evidence would have been unfavorable to the despoiler,' and is by no means conclusive." Tancrelle v. Friendly Ice Cream Corporation, 756 A.2d 744, 749 (R.I. 2000) (emphasis in original) (quoting New Hampshire Insurance Co. v. Rouselle, 732 A.2d 111, 114 (R.I. 1999)). The Court concludes that spoliation of evidence is not a ground upon which summary judgment will be granted in this case and such an issue would go to the weight of the evidence, not its admissibility. Defendants further argue that summary judgment should be granted based on the evidentiary admissions by Plaintiffs' former counsel during arbitration proceedings. (Defs.' Mem. 13.) "Pleadings in a prior case may be admitted against the filing party in a subsequent trial on the basis that such pleadings constitute an admission by a party-opponent." DeChristofaro v. Machala, 685 A.2d 258, 265 (R.I. 1996). Such admissions are "open to explanation by the party against whom the pleadings are offered." Atlantic Paint & Coatings, Inc. v. Conti, 119 R.I. 522, 529, 381 A.2d 1034, 1037 (1977). The Court concludes that the issue of an evidentiary admission is not a ground upon which this Motion for Summary Judgment should be granted.
Nappa CM and Steven Nappa argue that summary judgment should enter with respect to Count VI (Fraudulent Misrepresentation), Count VII (Conspiracy to Commit Fraudulent Misrepresentation), and Count VIII (Negligent Misrepresentation) based on the economic loss doctrine. (Defs.' Mem. 19-20.)
Plaintiffs argue the economic loss doctrine does not apply because the individuals who signed the requisition forms (Defendants Brzoza, DeRobbio, and Steven Nappa) without an independent engineer certification attached are not in privity of contract with the Plaintiffs. (Pls.' Mem. 22.)
Defendants counter that Plaintiffs make no argument with respect to Nappa CM and Steven Nappa's economic loss doctrine argument and that summary judgment should enter. (Defs.' Reply 4.)
1
Privity of Contract
"[A] party can maintain an action for breach of contract as well as tort where the defendant's conduct constituted a breach of duty separate and distinct from the breach of contract." Ciccone v. Pitassi, No. Civ.A. PB 97-4180, 2004 WL 2075120, *7 (R.I. Super. Aug. 13, 2004) (internal quotation omitted); see A.A.A. Pool Service &Supply, Inc. v. Aetna Casualty &Surety Company, 121 R.I. 96, 98, 395 A.2d 724, 725 (1978) (noting that parties to contract have obligation to deal fairly but does not create separate claim in tort).
"It has long been settled that an agent acting on behalf of a disclosed principal is not personally liable to a third party for acts performed within the scope of his authority.... An agent, however, may be personally liable for unauthorized acts outside the scope of the agency, . . . for acts to which the agent has bound himself or herself-either expressly or impliedly- under a contract, . . . or for acts within the scope of a duty that is otherwise independent of the agency relationship[.]" Kennet v. Marquis, 798 A.2d 416, 418-19 (R.I. 2002) (citations omitted; internal quotation omitted).
Defendant Brzoza was a project manager for Nappa CM acting in his capacity as an employee while signing any requisition requests. Defendant DeRobbio was Defendant Independence Bank's inspector. Defendant Steven Nappa was the owner of Nappa CM. There is nothing on the record to indicate that all individuals were not acting in their capacities as agents of their respective employers or companies. Moreover, Defendants Brzoza and DeRobbio are not movants to this Motion for Summary Judgment. The Plaintiffs have not submitted any evidence that Steven Nappa acted outside the scope of his agency relationship with Nappa CM. Steven Nappa clearly signed the set-aside agreement as a "member" of Nappa CM. (Independence Bank's Mem. Ex. L.) Defendant Brzoza clearly signed the Construction Contract as "project manager" for Nappa CM. (Nappa Aff., Ex. A.)
The Plaintiffs' claims allege wrongful conduct that relates to the construction and the Construction Contract. Nevertheless, Plaintiffs fail to appreciate that the Rhode Island Supreme Court has concluded before that in the construction context between commercial entities, the economic loss doctrine prevents a negligence claim despite a lack of privity. Hexagon Holdings, Inc. v. Carlisle Syntec Inc., 199 A.3d 1034, 1043 (R.I. 2019); see Owen Building LLC v. Victory Heating &Air Conditioning Company, Inc., C. A. No. 20-00266-WES, 2021 WL 412282, *3 (D.R.I. 2021) (declining to apply lack of privity of contract exception to economic loss doctrine).
Therefore, this Court concludes that Plaintiffs' argument that the economic loss rule does not bar their tort claims against Defendants because Plaintiffs are not in privity of contract with them unpersuasive.
2
Economic Loss Doctrine
In civil actions involving contracts, "[w]hen parties have contracted to protect against potential economic liability, as is the case in the construction industry, contract principles override [. . .] tort principles [. . .] and, thus, purely economic damages are not recoverable." Franklin Grove Corporation v. Drexel, 936 A.2d 1272, 1275 (R.I. 2007) (internal quotation omitted). "Our rationale for abiding by the economic loss doctrine centers on the notion that commercial transactions are more appropriately suited to resolution through the law of contract, than through the law of tort." Id. at 1275. The economic loss doctrine applies "to entities acting in a business capacity." Id. at 1276.
Here, Plaintiffs were business owners opening an automotive repair facility that services paying customers, and Defendants were a construction company that provided services to large commercial projects. This is not a consumer transaction. See id. at 1276 (economic loss doctrine does not apply to consumer transactions). Contrary to Plaintiffs' arguments that they are not sophisticated in the construction industry, "[t]he economic loss doctrine does not turn on how sophisticated the businesses are." Id. at 1277.
"[I]f tort and contract remedies were allowed to overlap, particularly in the construction industry, certainty and predictability in allocating risk would decrease and impede future business activity." Boston Investment Property No. 1 State v. E.W. Burman, Inc., 658 A.2d 515, 517 (R.I. 1995) (internal quotation omitted). Correspondingly, the economic loss doctrine makes "tort claims unavailable in circumstances in which the parties were in a contractual setting and the injuries were purely economic." Levin v. Kilborn, 756 A.2d 169, 174 (R.I. 2000).
Here, the parties entered into a contract to define their rights and responsibilities for the construction of the automotive shop. "Accordingly, the proper course would have been for the parties to utilize contract law to protect themselves from economic damages, which is the very essence of the economic loss doctrine." Franklin Grove Corporation, 936 A.2d at 1277 (internal quotation omitted).
General conditions of the Construction Contract identified were adopted and incorporated by reference into the Construction Contract signed between Nappa CM and Flynn Automotive. (Nappa Aff., Ex. A.) Within those general conditions are numerous provisions dealing with claims for damages, including a mutual waiver of consequential damages arising out of the contract in § 15.1.6. Id. Additionally, multiple sections are devoted to damages issues, including §§ 3.2.4, 3.18, 6.1.1, 8.3.3, 9.5.1, 9.6.7, 10.3.3, 11.1.1, 11.3.5, 11.3.7, 14.1.3, and 14.2.4. Id.
It is clear the parties contracted for issues related to potential damages. "Contract principles . . . are generally more appropriate for determining claims for consequential damage that the parties have . . . addressed in their agreement." Boston Investment Property No. 1, 658 A.2d at 518 (internal quotation omitted). In the final analysis, negligence, negligent misrepresentation, fraudulent misrepresentation, and conspiracy to commit fraudulent misrepresentation are tort claims. State v. Lead Industries Association, Inc., No. 99-5226, 2001 WL 345830, at *12 (R.I. Super. Apr. 2, 2001); see McGovern v. Crossley, 477 A.2d 101, 103 (R.I. 1984) (action for deceit sounds in tort). Moreover, the alleged misrepresentations here occurred after the signing of the contract and work commenced. See Rhode Island Economic Development Corporation v. Wells Fargo Securities, LLC, No. PB-12-5616, 2013 WL 4711306, at *38 (R.I. Super. Aug. 28, 2013) (economic loss doctrine not applicable to Plaintiff's claim for negligent misrepresentation because misrepresentations allegedly occurred before agreement, induced agreement, and related to independent duty).
Therefore, Defendants' Motion for Summary Judgment is granted with respect to Counts II, VI, and VII.
IV
Conclusion
For the foregoing reasons, Defendants' Motion for Summary Judgment is GRANTED with respect to Counts I (Breach of Contract), II (Negligence), VI (Fraudulent Misrepresentation), VII (Conspiracy to Commit Fraudulent Misrepresentation), and Count VIII (Negligent Misrepresentation) because all Counts relate to and arise from conduct related to the Construction Contract and the contractually agreed upon dispute resolution method of arbitration for all claims was terminated.
Defendants' Motion for Summary Judgment is GRANTED with respect to Counts II (Negligence), VI (Fraudulent Misrepresentation), and VII (Conspiracy to Commit Fraudulent Misrepresentation) pursuant to the Economic Loss Doctrine.
Finally, Defendants' Motion for Summary Judgment is GRANTED with respect to Count VIII (Negligent Misrepresentation) pursuant to Plaintiffs' stipulation and the Economic Loss Doctrine.
Counsel shall prepare the appropriate order.