Opinion
No. 07-664.
Filed 20 May 2008.
Buncombe County No. 05CVS3046.
Appeal by Plaintiff Mosteller Mansion, LLC, from order entered 8 February 2007 by Judge Mark E. Powell in Buncombe County Superior Court. Heard in the Court of Appeals 14 January 2008.
Adams, Hendon, Carson, Crow Saenger, P.A., by E. Thomison Holman, for Plaintiff-Appellant. Haynsworth Sinkler Boyd, P.A., by Calvin T. Vick, Jr., pro hac vice, and Van Winkle, Buck, Wall, Starnes and Davis, P.A., by W. James Johnson, for Defendant-Appellee.
On 17 June 2002, Mosteller Mansion, LLC ("Mosteller") entered into a contract with Mactec Engineering and Consulting of Georgia, Inc., f/k/a Law Engineering and Environmental Services, Inc. ("Mactec"), in connection with Mosteller's plan to purchase a sixteen-acre tract of land in order to thereon construct an apartment complex (the "Project Site"). Pursuant to the contract, Mactec was to: (1) assess the subsurface conditions of the ProjectSite; (2) determine if the Project Site was suitable for the construction of foundations and other proposed improvements; and (3) provide recommendations for foundation design and site preparation for the proposed structures. The contract contained the following provisions pertinent to this appeal:
3. Standard of Care. [Mactec] will perform [its services] using that degree of skill and care ordinarily exercised under similar conditions by reputable members of [Mactec's] profession practicing in the same or similar locality at the time of performance. . . .
. . . .
8. Limitation of Liability. The inclusion of a limitation of liability provision in this Agreement under the terms set forth below is a material consideration for [Mactec's] willingness to perform the services. To the maximum extent permitted by applicable law and for additional consideration of $10.00 from [Mactec], [Mosteller] hereby expressly agrees that the liability of [Mactec], including its parent and affiliated companies, officers, directors, employees, agents, successors, assigns and subcontractors, for any cause of action based upon breach of contract, strict liability, negligent professional acts, errors or omissions or negligent misrepresentation arising out of or in connection with this Agreement and/or any services provided, or work product developed, pursuant to this Agreement shall be limited to the aggregate sum, inclusive of amounts paid to secondary clients to whom work product is provided under a secondary client agreement with [Mactec] and to any other third parties, together with reasonable attorneys' fees and all other defense costs, of $50,000 or the total fees paid to [Mactec] by [Mosteller] under this Agreement, whichever is greater. All third party beneficiaries to this Agreement, if any, are intended to be and hereby are bound by the terms of this limitation of liability and the aggregate limitation of liability contained herein. 9. Indirect Damages. Neither party shall be responsible to the other or to any third party for any economic, consequential or indirect damages (including, but not limited to, loss of use, income, profits, financing or reputation) arising out of or relating to this Agreement or the performance of the services.
. . . .
18. Governing Law. This Agreement shall be governed by the laws of the State of Georgia. . . .
Unlike any of the contract's other provisions, the Limitation of Liability and Indirect Damages provisions were printed entirely in capital letters.
Pursuant to the contract, Mactec drilled nineteen soil test borings at the Project Site. On 19 July 2002, Mactec submitted a "Report of Geotechnical Exploration" to Mosteller which explained the findings from the test borings and presented recommendations for foundation design. Mosteller paid Mactec $8,900.00 for its services and, thereafter, purchased the Project Site and began grading the land in advance of erecting the apartments.
On 15 July 2005, Mosteller and Delphi Development, LLC ("Delphi") (collectively, "Plaintiffs") filed a complaint against Mactec alleging breach of contract, negligence, professional negligence, and negligent misrepresentation. According to the complaint,
It is not clear from the record what role Delphi played in the events comprising this action. According to Mosteller's and Delphi's responses to Mactec's first set of interrogatories, Delphi performed "development services on behalf of Mosteller."
[u]pon commencing the grading of the Project Site[,] Plaintiffs discovered soil altogether unsuitable for the proposed construction, unsuitable to provide support for the proposed foundations, unsuitable for other improvements proposed for the Project and inconsistent with the findings and recommendations of [Mactec's] Report.
In response to Mactec's first set of interrogatories, Mosteller alleged that Mactec had caused in excess of $3,000,000 in damages. Mosteller's damages were allegedly incurred
to remove the unsuitable soils, transport the unsuitable soils to other areas of the [Project Site], mix and otherwise condition the unsuitable soils and to make them suitable for the construction of building foundations, road, parking lots and other improvements, including additional materials/supplies, engineering work, testing/monitoring, design/planning work, site preparation, grading, and construction.
Additionally, Mosteller allegedly suffered damages from loss of business and in additional costs incurred for insurance, interest, and penalties.
Mactec answered the complaint on 15 September 2005. In its answer, Mactec advanced ten affirmative defenses, including:
To the extent that Mosteller has stated claims in negligence against [Mactec], said claims are barred to the extent that the damages alleged are economic in nature and governed by the contract. . . .
. . . .
The contract . . . contains a damages limitation that is plead [sic] in complete and/or partial bar of Plaintiffs' claims.
. . . .
The contract . . . contains a mutual waiver of consequential and incidental damages [which] is pled in bar or in limitation of Plaintiffs['] claims and damages.
On 22 December 2006, Mactec filed a motion for summary judgment asserting that all of Mosteller's claims arose out of services performed pursuant to the contract and were, therefore, subject to the contract's terms and conditions. Mactec sought an order enforcing both the Limitation of Liability provision and the Indirect Damages provision. The trial court granted summary judgment in favor of Mactec on all of Mosteller's claims, denied Mactec's motion as to Delphi's claims, and, pursuant to Rule 54(b) of the Rules of Civil Procedure, certified its order for immediate appeal.
On appeal, Mosteller argues: (1) the law of North Carolina, not Georgia, applies to all of its claims, (2) the Limitation of Liability and Indirect Damages provisions violate North Carolina law, (3) even if Georgia law applies, the provisions violate Georgia law, and (4) even if the provisions do not violate either North Carolina or Georgia law, the provisions do not apply to the professional negligence or negligent misrepresentation claims.
I. STANDARD OF REVIEW
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2007). "[A]ll inferences of fact . . . must be drawn against the movant and in favor of the party opposing the motion." Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007) quotation marks and citation omitted). We review an order granting summary judgment de novo, Forbis, 361 N.C. 519, 649 S.E.2d 382, and our review "is necessarily limited to whether the trial court's conclusions as to whether there is a genuine issue of material fact and whether the moving party is entitled to judgment, both questions of law, were correct." Schenkel Shultz, Inc. v. Hermon F. Fox Assocs., ___ N.C. ___, ___, 658 S.E.2d 918, 923 (2008) (citing Ellis v. Williams, 319 N.C. 413, 415-17, 355 S.E.2d 479, 481-82 (1987)).
II. CHOICE OF LAW
Mosteller argues that the law of North Carolina governs all of its claims, notwithstanding the contractual choice of law provision. We agree with Mosteller that the law of North Carolina governs the resolution of its tort claims, as, under North Carolina law, the law of the state where a tort was committed controls the substantive issues of the claim. Gbye v. Gbye, 130 N.C. App. 585, 503 S.E.2d 434, disc. review denied, 349 N.C. 357, 517 S.E.2d 893 (1998). We conclude, however, that the law of Georgia controls the resolution of the substantive issues of Mosteller's breach of contract claim.
North Carolina courts generally recognize the validity and enforceability of contractual choice of law provisions. Cable Tel Servs., Inc. v. Overland Contr'g, Inc., 154 N.C. App. 639, 574 S.E.2d 31 (2002). However, our courts will not enforce a choice of law provision if
(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice,
or
(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of applicable law in the absence of an effective choice of law by the parties.
Id. at 643, 574 S.E.2d at 33-34 (quoting Restatement (Second) of Conflict of Laws § 187 (1971)).
To render foreign law unenforceable as contrary to public policy, it must violate some prevalent conception of good morals or fundamental principle of natural justice or involve injustice to the people of the forum state. This public policy exception has generally been applied in cases such as those involving prohibited marriages, wagers, lotteries, racing, gaming, and the sale of liquor.
Boudreau v. Baughman, 322 N.C. 331, 342, 368 S.E.2d 849, 857-58 (1988) (citations omitted).
Mosteller asserts that "there is no reasonable basis for selecting Georgia to govern the services of professional engineers practicing solely within North Carolina and subject to this State's, and not Georgia's, laws and regulations." Mosteller acknowledges, however, that Mactec maintains its principal place of business in Georgia. Thus, Georgia has a substantial relationship to the dispute, and there is a reasonable basis for the parties' choice.
Mosteller also asserts that application of Georgia law would be contrary to the public policy of North Carolina. Specifically, Mosteller argues that applying Georgia law would "violate [this] State's compelling public policy of regulating engineers practicing in North Carolina." It is undisputed that, in the absence of the choice of law provision, North Carolina law would govern Mosteller's claims. Assuming without deciding that North Carolina has a materially greater interest in the issues than does Georgia, we nevertheless discern no injustice to the people of North Carolina in the application of Georgia law to this case. This is simply not a case involving good morals or fundamental principles of natural justice, such as prohibited marriages, wagers, lotteries, racing, gaming, or the sale of liquor. We conclude that the law of Georgia applies to Mosteller's breach of contract claim.
III. BREACH OF CONTRACT A. Limitation of Liability
Mosteller argues that the Limitation of Liability provision violates Georgia's public policy and statutes. As Mosteller concedes, however, "[s]ubsequent to the trial court's ruling in this action, the Georgia Court of Appeals issued a decision, [ Lanier at McEver, L.P. v. Planners Eng'rs Collaborative, Inc., 285 Ga. App. 411, 646 S.E.2d 505 (2007), cert. granted, ___ Ga. ___, ___ S.E.2d ___ (No. S07G1424) (Oct. 29, 2007)], which rejects similar arguments."
In Lanier, plaintiff brought suit against defendant, a professional engineering firm, seeking damages which allegedly resulted from defendant's negligent design of a storm drainage system for plaintiff's apartment complex. Defendant performed the work pursuant to a contract which provided, in part, "the total aggregate liability of [defendant] and its subconsultants to all those named shall not exceed [defendant's] total fee for services rendered on this project." Id. at 412, 646 S.E.2d at 506. The trial court entered partial summary judgment for defendant, limiting the amount recoverable as damages to the amount of fees paid by plaintiff to defendant for the project. On appeal, plaintiff argued the damages limitation clause violated Georgia's public policy and Section 13-8-2(b) of Georgia's statutes. The Court of Appeals of Georgia specifically held that it found "no conflict between the damages limitation clause and the public policy of [Georgia]." Id. at 413, 646 S.E.2d at 507. The Georgia court also held that the damages limitation clause did not violate Ga. Code Ann. § 13-8-2(b) (2005).
The Limitation of Liability provision at issue in the present case is practically identical to the provision at issue in Lanier. Accordingly, we conclude that the Limitation of Liability provision does not violate Georgia's public policy or statutes. Mosteller's assertion to the contrary is overruled.
B. Indirect Damages
Next, Mosteller argues that the Indirect Damages provision violates Georgia's public policy and law. In support of this argument, Mosteller first cites Ga. Code Ann. § 13-8-2(b). This statute, essentially identical to its North Carolina counterpart, provides:
A covenant, promise, agreement, or understanding in or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents or employees, or indemnitee is against public policy and is void and unenforceable, provided that this subsection shall not affect the validity of any insurance contract, workers' compensation, or agreement issued by an admitted insurer.
Ga. Code Ann. § 13-8-2(b); see N.C. Gen. Stat. § 22B-1 (2005). The Indirect Damages provision in the instant case does not exculpate or release Mactec from liability for damages arising out of personal injury, death, or property damage. Thus, the provision does not violate Ga. Code Ann. § 13-8-2(b).
Mosteller also argues the Indirect Damages provision violates Georgia public policy "in part based on Georgia's regulation of engineers and [ Emory Univ. v. Porubiansky, 248 Ga. 391, 282 S.E.2d 903 (1981)]. . . ." In Porubiansky, plaintiff became a patient at the Emory University School of Dentistry's dental clinic in 1976. Prior to treatment, she was required to execute a form which provided:
In consideration of Emory University School of Dentistry performing dental treatment, I do hereby expressly waive and relinquish any and all claims of every nature I or my minor child or ward may have against Emory University, its officers, agents, employees, or students, their successors, assignees, administrators, or executors; and further agree to hold them harmless as the result of any claims by such minor child or ward, arising out of any dental treatment rendered, regardless of its nature or extent.
Id. at 392, 282 S.E.2d at 903-04. In April 1977, plaintiff had an impacted tooth removed at the clinic. Afterwards, she brought suit alleging that as a result of negligent treatment, her jaw was broken during the procedure. The trial court granted summary judgment in favor of Emory based on the exculpatory clause. Georgia's Court of Appeals reversed, holding that the clause was void as against public policy, and Emory appealed to Georgia's Supreme Court.
The supreme court affirmed the court of appeals. The supreme court first recognized that "dentistry is a profession licensed and controlled by the state[,]" id. at 393, 282 S.E.2d at 904 (citation omitted), and that Georgia's legislature had established a minimum standard of care for the profession. The court then stated that "[i]t is well settled that contracts will not be avoided by the courts as against public policy, except `where the case is free from doubt and an injury to the public interest clearly appears'." Id. (quoting Phenix Ins. Co. v. Clay, 101 Ga. 331, 332, 28 S.E. 853, 854 (1897)). Finally, the court held "that it is against the public policy of this state to allow one who procures a license to practice dentistry to relieve himself by contract of the duty to exercise reasonable care." Porubiansky, 248 Ga. at 394, 282 S.E.2d at 905 (emphasis added).
Even though, like dentists, engineers are licensed and regulated by Georgia law, Ga. Code Ann. §§ 43-15-1 to-30 (2005), Porubiansky does not lead us to conclude that the Indirect Damages provision at issue in this case violates Georgia's public policy. The clause at issue in Porubiansky relieved Emory of all liability from claims based on Emory's negligence. In the instant case, the Indirect Damages provision only relieves Mactec from liability for indirect, economic damages and it does not exculpate Mactec from liability for personal injury or property damage. Thus, Porubiansky is distinguishable and does not control our resolution of this case. Mosteller presents no other authority for our consideration. Mindful that contractual provisions should only be avoided as against public policy where the case is free of doubt, we conclude that this provision does not violate Georgia's public policy. Mosteller's argument is overruled.
IV. TORT CLAIMS
Finally, Mosteller contends that neither the Limitation of Liability provision nor the Indirect Damages provision bars its claims of professional negligence and negligent misrepresentation. In support of this contention, Mosteller first argues that the trial court erroneously granted summary judgment in favor of Mactec on the basis of the economic loss rule, which provides that, ordinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor. North Carolina State Ports Auth. v. Lloyd A. Fry Roofing Co., 294 N.C. 73, 240 S.E.2d 345 (1978). Second, Mosteller argues that the subject provisions violate both Section 22B-1 of our General Statutes and North Carolina's public policy. We are not persuaded by either argument.
A. Economic Loss Rule
Mosteller argues the trial court concluded that Mosteller's negligence claims were barred by the economic loss rule. The order from which appeal is taken contains no such conclusion. The trial court did not conclude that the economic loss rule operated as a bar to Mosteller's claims. Moreover, even if the trial court had so concluded, we note that our review "is necessarily limited to whether the trial court's conclusions as to whether there is a genuine issue of material fact and whether the moving party is entitled to judgment, both questions of law, were correct." Schenkel Shultz, ___ N.C. at ___, 658 S.E.2d at 923; see Nelson v. Hartford Underwriters Ins. Co., 177 N.C. App. 595, 630 S.E.2d 221 (2006). Mosteller's argument is overruled.
B. Section 22B-1 Public Policy
Next, Mosteller argues the Limitation of Liability and Indirect Damages provisions violate Section 22B-1 and public policy. This Court recently addressed a similar argument in Blaylock Grading Co. v. Smith, ___ N.C. App. ___, 658 S.E.2d 680 (2008).
In Blaylock, defendants provided land surveying services to plaintiff pursuant to a contract which contained a risk allocation clause limiting defendants' total liability from any cause of action, including negligence, to $50,000. After defendants completed their services under the contract, plaintiff filed a complaint alleging breach of contract and negligence. The case went to trial, and a jury found in plaintiff's favor on both claims, returning a verdict in the amount of $574,714. The trial court then held that the risk allocation clause was void as against public policy and entered judgment on the verdict. Defendants appealed.
Quoting Gas House, Inc. v. Southern Bell Tel. Tel. Co., 289 N.C. 175, 182, 221 S.E.2d 499, 504 (1976), overruled on other grounds by State ex rel. Utils. Comm'n v. Southern Bell Tel. Tel. Co., 307 N.C. 541, 299 S.E.2d 763 (1983), this Court stated:
People should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain. Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side. It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fairminded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.
Blaylock, ___ N.C. App. at ___, 658 S.E.2d at ___. We then noted that there were no formation irregularities in the contract and that there was no inequality in bargaining position between the parties. Additionally, we noted that defendants were not common carriers or providers of a public utility. We stated that "[p]laintiff and defendants are sophisticated, professional parties who conducted business at arms' length, and the `result' of the contract does not elicit a `profound sense of injustice.'" Id. at ___, 658 S.E.2d at ___ (quoting Gas House, 289 N.C. at 182, 221 S.E.2d at 504). We rejected plaintiff's contention that "land surveying services fall within the public service exception because they are `extensively regulated' industries." Id. at ___, 658 S.E.2d at ___. We stated that the regulating and licensing of "engineers and land surveyors" does not automatically convert those professions into public services. Id. Further, we stated,
when a breach of contract between two parties involves only economic loss, as in the present case, the health and safety of the public are not implicated. A third party who might be affected by negligence of an engineer or surveyor can still bring a negligence suit against the engineer or surveyor.
Id. (citation omitted). Finally, we found inapplicable the provisions of N.C. Gen. Stat. § 22B-1, which states:
Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee, the promisee's independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy and is void and unenforceable. . . .
N.C. Gen. Stat. § 22B-1. "The statute[,]" we said, "does not apply to contracts between a promisor and promisee limiting the amount of damages recoverable by one from the other, as does the contract in the present case." Blaylock, ___ N.C. App. at ___, 658 S.E.2d at ___. We concluded that the risk allocation provision was enforceable and reversed the trial court. The Limitation of Liability provision in the case at bar is practically identical to the risk allocation clause at issue in Blaylock. Neither party contends that there were any formation irregularities in the contract or that there was an inequality in bargaining position between them. Mactec was not a common carrier or a provider of a public utility. The parties were sophisticated professionals, and the result of their bargain does not elicit a profound sense of injustice. Moreover, Mosteller's assertion to the contrary, all of Mosteller's damages were economic, indirect, and consequential, and the health and safety of the public are not implicated. Accordingly, we conclude that the Limitation of Liability provision does not violate N.C. Gen. Stat. § 22B-1 and is not void as against public policy. Blaylock, ___ N.C. App. ___, 658 S.E.2d 680. We reach the same conclusion concerning the Indirect Damages provision. These provisions apply to Mosteller's claims of negligent misrepresentation and professional negligence. Mosteller's argument is overruled.
Mosteller concedes that some of its damages were "indirect" as contemplated by the Indirect Damages provision, but contends that most of its damages were directly caused by Mactec's conduct and were incurred in repairing and reconditioning the soils which Mactec represented were suitable for the construction of apartment buildings. Such damages are indirect and consequential, as the damages "do not flow directly and immediately from" any action of Defendant. Black's Law Dictionary 394 (7th ed. 1999) (defining "consequential damages"); see Gagne v. Bertran, 275 P.2d 15, 23 (Cal. 1954) ("The additional expense [plaintiffs] incurred . . . flowed from the condition of their land and not from defendant's report as to what that condition was.").
V. CONCLUSION
The choice of law provision is valid and enforceable. Pursuant to that provision, Georgia law governs our interpretation of the contract. The Limitation of Liability and Indirect Damages provisions do not violate Georgia's public policy or statutes. Based on those provisions, Mactec is entitled to judgment as a matter of law on Mosteller's breach of contract claim. The Limitation of Liability and Indirect Damages provisions do not violate North Carolina's public policy or statutes. Based on those provisions, Mactec is entitled to summary judgment on Mosteller's claims of professional negligence and negligent misrepresentation. Mosteller does not contend that the trial court erred in entering summary judgment on its negligence claim. In sum, the trial court did not err in entering summary judgment in favor of Mactec on all of Mosteller's claims.
AFFIRMED.
Chief Judge MARTIN and Judge STEELMAN concur.
Report per Rule 30(e).