Opinion
NO. 2009-CV-0190
02-14-2014
Town of Bow v. Provan and Lorber, Inc and Gordon Construction, Inc.
ORDER
The Plaintiff, the Town of Bow ("Town") brought this action against the Defendants, Provan and Lorber, Inc. ("PLI") and Gordon Construction, Inc. ("Gordon") seeking damages arising out of construction of a bridge on Dunklee Road in Bow. After a culvert on Dunklee Road was washed away in 2006, the Town entered into a contract with PLI by which PLI acted as lead consultant and engineer of record for a new bridge and culvert. Gordon entered into a contract with the Town to act as prime contractor for a new bridge and culvert.
The Town brought an action in 2009, alleging that the bridge and culvert were defectively designed and were not constructed in a good and workmanlike manner and in conformity with acceptable industry standards and applicable building codes. The original Writ of Summons sought damages based upon breach of contract, warranty, negligent and material misrepresentation, negligence and violation of the consumer protection, RSA 358-A. The case is set for trial during the week of February 24, 2014. The parties have filed a number of pretrial motions.
Actions were brought against other defendants, but they have either been resolved or settled and they are not relevant to this inquiry.
Gordon has filed a motion alleging that the potential availability of State aid for up to 80% of the cost of reconstruction of the bridge requires the Court to rule, in advance of trial, that PLI's damages claims must be capped at 20% of the costs reasonably necessary to repair the bridge. For the reasons stated in this Order, the Motion is DENIED.
The parties have also filed pretrial memoranda, which seem to assume that any damages awarded must be allocated pursuant to RSA 507:7-e and DeBenedetto v. CLD Consulting Engineers, Inc., 153 N.H. 793, 804 (2006). Because this action is a contract action, and not a tort action, RSA 507:7-e is not applicable to this case. Finally, the parties have filed several motions in limine, relating to potential evidentiary issues, which are DENIED, MOOT or DEFERRED as explained in the Order.
I
Gordon has filed a Motion it has captioned "Motion for Advance Ruling." It characterizes the issue raised in the motion as whether the town of Bow may "voluntarily forego compensation available from the State for 80% of its reconstruction costs and still seek to recover these costs as damages from the defendants". (Gordon's Mot. Advance Ruling, 1.) It reasons that RSA 234:10 allows the Town to seek payment by the State of 80% of the cost of reconstruction (including design costs) of the bridge at issue. Gordon argues that "[t]hat aid would give defendants a right to deduct the amount to be received from the State from the repair costs otherwise claimed by the Town as damages, in accordance with Moulton v. Groveton Papers Co., 114 N.H. 505 (1974), which held that the collateral source rule does not apply in the case of State aid to a municipality for bridge repair." Id. at 1.
The Town argues that Moulton is distinguishable from the present matter, because the bridge in question is failing as a direct consequence of significant design and construction related errors, not a major flood, and the statutes applicable to the Town of Stark's situation in the Moulton case and the State aid available to the Town vary to a significant degree. See (Town's Obj. Gordon's Mot. Advance Ruling 3.) But the Court believes that the more important issue is that Moulton involved a tort claim, and this case involves contract claims. The collateral source rule is thus inapplicable to this case.
The starting point for analysis is the claim made by the Town. Both the Town and Gordon assume that the action brought by the Town sounds in tort or at least that tort principles govern apportionment of damages between the two defendants. The original writ was brought in 2009 against PLI, Gordon, and three other entities who are no longer parties to this case, Wright-Pierce Inc., Michie Corporation and SFC Engineering Partnership, Inc. The Writ set forth claims against all defendants for breach of contract, (Count I), warranty (Count II), negligent and/or material misrepresentation (Count III), negligence (Count IV), and violation of RSA 358-A (Count V) and against PLI alone, negligence (Count VI). More recently, in its Pretrial Memorandum, the Town characterized its remaining claims against the parties as breach of contract against PLI; breach of warranty against PLI; negligence against PLI; breach of contract against Gordon; and breach of warranty against Gordon.
Whether an action is a tort action or a contract action is not determined by the form of the action, but by its substance. Gould v. Concord Hosp., 126 N.H. 405, 407 (1985); Guerin v. New Hampshire Catholic Charities, Inc., 120 N.H. 501, 505 (1980). "In New Hampshire, the general rule is that 'persons must refrain from causing personal injury and property damage to third parties, but no corresponding tort duty exists with respect to economic loss.'" Plourde Sand and Gravel, Inc. v. JGI Eastern, Inc,. 154 N.H. 791, 794 (2007) (quoting Ellis v. Robert C Morris Inc., 128 N.H. 358, 364 (1986) overruled on other grounds by Lempke v. Dagenais, 130 N.H. 782, 792 (1988)). Thus, while a plaintiff may recover damages for economic loss under a contract, generally a cause of action in negligence for purely economic loss will not lie. Plourde, 154 N.H. at 794.
A narrow exception to the economic loss rule applies when there is a "special relationship" between the party to be charged and the plaintiff. The New Hampshire Supreme Court has likened the duty owed in such a relationship to that owed by a promisor to an intended third-party beneficiary, "[a] third party beneficiary relationship exists if the contract is so expressed as to give the promisor reason to know that a benefit to a third party is contemplated by the promisee as one of the motivating causes of his making the contract." Plourde, 154 N.H. at 796, quoting Spherex, Inc. v. Alexander Grant & Co., 122 N.H. 898, 903 (1982). In Plourde, the Court stated:
The [economic loss] doctrine is a "judicially-created remedies principle that operates generally to preclude contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship." [Citation omitted].Plourde, 154 N.H. at 794 (quoting Tietsworth v. Harley-Davidson, Inc., 677 N.W.2d 233, 241—42 (Wisc. 2004).
The economic loss doctrine is based on an understanding that contract law and the law of warranty, in particular, is better suited than tort law for dealing with purely economic loss in the commercial arena. If a contracting party is permitted to sue in tort when a transaction does not work out as expected, that party is in effect rewriting the agreement to obtain a benefit that was not part of the bargain.
Plaintiff is in privity with both PLI and Gordon. Its rights with respect to each of them are defined by the agreement between them. It could not have a special relationship, constituting an exception to the economic loss doctrine, because it contracted the relationship that it has. Regardless of how it captions its claims, they are all based on the contracts between the parties. Since Gordon's relationship with the Town is contractual in nature, it follows that the collateral source doctrine of tort law is not relevant to this case. Gordon's assertion that the availability of potential State aid affects the ability of the Town to recover must therefore be addressed in the context of the contract claim the Town is making.
II
A non-breaching party is entitled to the benefit of its bargain; damages are awarded to put the party in the position it would have been in but for the breach. Concord Hospital v. New Hampshire Medical Malpractice Joint Underwriting Association, 142 N.H. 59, 61 (1997). The Town may recover damages from each Defendant based upon its expectation damages, as measured by "(a) the loss in the value to [it] of the other party's performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform." RESTATEMENT (SECOND) OF CONTRACTS § 347. The comments to the Restatement note that "[t]he principle that a party's liability is not reduced by payments or other benefits received by the injured party from collateral sources is less compelling in the case of a breach of contract than in the case of a tort". RESTATEMENT (SECOND) OF CONTRACTS § 347 comment e (citation omitted).
A party cannot recover damages for loss he could have avoided by reasonable efforts. See Grenier v. Barclay Square Commercial Condo. Owners' Association, 150 N.H. 111, 119 (2003) (recognizing that a party seeking damages "must take all reasonable steps to lessen his or her resultant loss."). RESTATEMENT (SECOND) OF CONTRACTS § 350 states the general rule that:
(1) Except as stated in Subsection 2, damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.As the comments to the Restatement note,
(2) The injured party is not precluded from recovery by the rule stated in subsection (1) to the extent he has made reasonable but unsuccessful efforts to avoid loss.
[I]t is sometimes said that it is the "duty" of the aggrieved party to mitigate damages but this is misleading because he incurs no liability for his failure to act. The amount of loss that he could reasonably have been avoided by stopping performance, making substitute arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.RESTATEMENT (SECOND) OF CONTRACTS § Section 350, Comment b. The Town argues that whether or not the State would approve an application filed by the Town of Bow is speculative, and even if it did approve such aid, under RSA 234:10-a the State would likely limit any State aid amount to any gap between the cost to rebuild the bridge and the funds received in connection with this lawsuit. (Town's Objection to Gordon's Motion for Advance Ruling ¶ 23.) The Town has also attached as an Exhibit to its Objection an August 2009 letter from the New Hampshire Department of Transportation replying to its request for aid, which states that "if we receive a signed Application for State Aid Bridge Construction within the next six (6) months, the earliest State Bridge Aid funds will be available is FY 2017 (July 1, 2016) and, depending on requests received in the interim by other committees, could be postponed to a subsequent funding year." (Ex. 1 to Objection, 2.) The Town asserts that since the State "did not foresee funds being available to disburse to the Town of Bow for another 7 years," and "the procedures involved with obtaining State bridge aid are onerous, the Town chose to pursue litigation and cease its pursuit of the State aid." (Town's Objection to Gordon's Motion for Advance Ruling ¶ 7.)
While the Town's argument may be correct, Gordon is entitled to attempt to prove that the Town failed to avoid damages by deciding to forego the opportunity to recover funds from the State. Whether or not it succeeds depends, ultimately, on whether or not the trier of fact finds that Plaintiff acted reasonably in deciding to forego the opportunity to seek aid, to be received, at some point in the future from the State, and instead, bring an action against the parties it had contracted with. But the Defendant bears the burden of proving that the Plaintiff failed to mitigate its damages, Grenier, 150 N.H. at 119, and the law does not require the Plaintiff to have made a perfect decision, but only a reasonable one. See Joseph M. Perillo, CORBIN ON CONTRACTS, § 57.11 (2005) ("The doctrine of avoidable consequences merely requires reasonable efforts to mitigate damages.").
III
The parties appear to assume that the trier of fact will need to apportion liability among the Defendants pursuant to RSA 507:7-e and DeBenedetto, 153 N.H. at 804. (Town's Pretrial Memo 9); (Gordon's Pretrial Memo 8-10.) However, the Court believes that the statute is not applicable to this case, and under the circumstances, no party is entitled to contribution.
RSA 507:7-e was enacted as "part of a comprehensive statutory framework for apportionment of liability and contribution." Nilsson v. Bierman, 150 N.H. 393, 395 (2003). This framework included RSA 507:7-d through RSA 507: 7-i, and was based upon the Uniform Comparative Fault Act in its treatment of comparative fault apportionment of tort damages. Jaswell Drill Corp. v. General Motors Corp., 129 N.H. 341, 344 (1987). The statute specifically references "damages in tort." RSA 507:7-d. It was enacted to eliminate the joint and several liability rule which allowed injured plaintiffs to "seek out and sue only 'deep pocket' defendants—tortfeasors with significant assets but a potentially low degree of fault who by virtue of joint and several liability may be responsible for the entire amount of recoverable damages." DeBenedetto, 153 N.H. at 798-799 (citation omitted). By its terms, RSA 507:7-d et seq. applies to tort claims and not contract.
Economic loss resulting from a breach of contract does not constitute injury in tort to person or property. It is generally held that contribution based on statutes such as RSA 507:7-d et seq. is not available in contract cases. Global Ground Support, LLC v. Glazer Enterprises, Inc., 581 F.Supp.2d 669, 673 (E.D.Pa. 2008) (Pennsylvania law); Wagner-Meinert, Inc. v. EDA Controls, Inc., 444 F.Supp.2d 800, 803 (N.D.Ohio 2006) (Ohio law); Strong Construction, Inc. v. City of Torrington, 255 P.2d 903, 913 (Wyo. 2011). Where the economic loss doctrine bars a claim for negligence, a defendant may not bring an action for indemnification or contribution. Franklin Road Corporation v. Drexel et al, 936 A.2d 1272, 1278 (R.I. 2007) (decided under Uniform Contribution among Tortfeasors Act).
The rationale for this principle is well stated by the New York Court of Appeals in Board of Education of the Hudson City School Dist. v. Sargent, Webster, Crenshaw and Folley, 517 N.E.2d 1360 (1987), in which it declined to allow an architect to bring a contribution action against a general contractor pursuant to a statute much like RSA 507:7-e:
To permit apportionment of liability, pursuant to CPLR 1401, arising solely from breach of contract would not only be at odds with the statute's legislative history, but also do violence to settled principles of contract law which limit a contracting party's liability to those damages that are reasonably foreseeable at the time the contract is formed. Here, Thompson was entitled to expect at the time it contracted with the District that its liability would be determined by its own contractual undertaking. Thompson should not now be confronted with potential liability based on the promise made by Sargent in its separate contract with the District. Sargent's argument that without a right of contribution, architects will be exposed to crushing liability is unpersuasive. Nothing prevented Sargent from negotiating for protection from liability in its contract with the District. Having neglected to do so, it may not now be heard to complain that it is exposed to a claim for damages.Id. at 1364-1365 (citations omitted).
Nor are we persuaded that we should create a common-law right of contribution in contract actions. The policy considerations that underlay Dole—the need to liberalize the inequitable and harsh rules that once governed contribution among joint tort-feasors—are not pertinent to contract matters. Parties to a contract have the power to specifically delineate the scope of their liability at the time the contract is formed. Thus, there is nothing unfair in defining a contracting party's liability by the scope of its promise as reflected by the agreement of the parties. Indeed, this is required by the very nature of contract law, where potential liability is determined in advance by the parties.
Here both parties have different contracts. This is not a case in which both parties entered into a contract including a promise to deliver identical performance—a defect free bridge. Each party may defend on the ground that it did not breach its contract, and that even if it breached, it did not cause the damage alleged. Each party may, of course, argue that damage was caused by breach of another contract to which it was not a party. But each party's exposure is limited by the contract it made.
If both parties had contracted for identical performance, there is authority for the proposition that a trier of fact would be required to apportion liability. Joseph M. Perillo, CORBIN ON CONTRACTS §55.9 (2005), but that is not the case here.
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IV
The parties have filed several other motions which can be dealt with summarily. PLI has filed a "Motion to Preclude Evidence by Plaintiff as (sic) Enhanced Damages." PLI seeks to prevent the Town from obtaining damages beyond the benefit of the bargain. PLI claims that the Town seeks to recover a windfall of damages "greatly exceeding the total cost of the initial Project" asserting that "construction costs have actually decreased" since the initial work was done. (Id. at 4.) To support this proposition, PLI attaches a letter to its counsel from one David M. Ponte, PE referencing a case called Suffolk University v. CBT Architects. If Mr. Ponte's letter were accepted, it would tend to show that the cost of construction in Boston, Massachusetts was lower in 2009 and 2010 than it was in 2007. The Town does not dispute the argument that it is not entitled to a betterment, but simply argues that it is entitled to present its case at trial to show that it is entitled to damages under the applicable contract standard.
PLI's Motion does no more than set forth a tautology: that the plaintiff in a breach of contract or negligence case is entitled to be put in the position he would have been but for the breach or the tort. This is plainly the law. Audette v. Cummings, No. 2012-496, 2013 WL 6794980, at *4 (N.H. Dec. 24, 2013). But whether or not an award of damages in this case would result in an award of betterment damages, plainly cannot be decided in advance of trial based upon a letter from a Massachusetts engineer commenting on construction costs in Boston, Massachusetts between 2007 and 2010. PLI's Motion in Limine must be DENIED.
The Town has also filed a Motion to Exclude Evidence of a Limit of Liability Clause in the contract between it and PLI. The Motion was filed because there was a concern that evidence of the clause might prejudice the jury. The parties have agreed to a bench trial, and the Town now agrees that the motion is MOOT, and it shall be so marked.
Finally, the Town has filed a Motion for Recovery of Attorneys' Fees and Costs of Mediation against PLI, alleging that PLI acted in bad faith at the mediation proceedings. Because the Court is the trier of fact, it will not consider the settlement posture of the case until the case is over. Accordingly, this motion shall be DEFERRED.
SO ORDERED.
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Richard B. McNamara,
Presiding Justice