Opinion
Case No. 3:04 CV 7467.
March 18, 2005
ORDER
This is a diversity suit over the payment of additional expenses incurred by a masonry contractor during a construction project. Plaintiff Epicentre Strategic Corporation, Michigan (Epicentre), as the assignee of Riverside Masonry, LLC (Riverside), has brought claims against: 1) Perrysburg Exempted Village School District (School District), the owner; 2) Rudolph/Libbe, Inc. (Rudolph), the construction manager; and 3) Fanning/Howey Associates, Inc. (Fanning), the architect, to recover these additional costs. Epicentre claims The School District breached the contract between Riverside and the School District, Rudolph was negligent in performing its duties as construction manager, and Fanning breached the contract between Riverside and the School District.
As Riverside's assignee, Epicentre has the right to any interest, lease, contract, or property right of Riverside.
Ohio substantive law governs in this case. Section 13.1 of the contract between Riverside and the School District states: "The Contract is governed by the law of the place where the Project is located." Ohio law also controls claims outside the Riverside-School District contract because a substantial portion of the events or omissions giving rise to Epicentre's claims occurred in Ohio.
Pending are defendants' motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Fanning's motion shall be granted, and the School District's and Rudolph's motions shall be denied.
Background
In November 1999, defendants solicited bids from masonry contracting firms to perform masonry work for construction of a new Perrysburg High School. After receiving this solicitation, Riverside requested and received a set of bid documents to assist it in preparing its bid. The bid package included a set of Milestone Dates that outlined dates in which particular elements of the project would be completed. Riverside used the Milestone Dates to formulate its bid.
On December 15, 1999, Riverside submitted a bid of $4,159,000 to perform the masonry work on the School District project. Riverside's bid was the lowest bid. As a result, on February 4, 2000, Riverside entered into a contract with The School District to perform the masonry work under the contract.
Riverside began the masonry work in March 2000. Epicentre claims Riverside fulfilled its obligations under the contract but defendants' actions during the project caused labor inefficiencies and extra costs for Riverside. Specifically, Epicentre claims defendants' failure to incorporate the Milestone Dates into a Master Project Schedule caused Riverside to expend additional sums of money to complete the project. Epicentre now seeks to recover these additional expenses from the defendants.
Epicentre alleges that the School District breached the contract between Riverside and the School District. Epicentre claims that the School District had an obligation under the contract between Riverside and the School District to direct Rudolph to incorporate Milestone Dates into a Master Project Schedule. Epicentre claims the School District failed to fulfill this obligation and, as a result, Rudolph never issued a Master Project Schedule. Epicentre claims the School District's failure to direct Rudolph to coordinate a Master Project Schedule resulted in an inefficient construction plan that caused Riverside to expend additional sums of money to complete the project.
Epicentre alleges Rudolph was negligent in performing its duties as construction manager. Epicentre claims Rudolph had a duty to Riverside to incorporate Milestone Dates into a Master Project Schedule. Epicentre claims Rudolph failed to incorporate the Milestone Dates into a Master Project Schedule, causing Riverside to suffer additional costs to complete the project.
Finally, Epicentre alleges Fanning breached the contract between Riverside and the School District. Epicentre claims Fanning, as part of the contract between Riverside and the School District, was to require Rudolph to issue a Master Project Schedule. Epicentre claims Fanning failed to fulfill this obligation and this failure caused Riverside to incur additional costs to complete the project.
All three defendants have now filed a motion to dismiss for failure to state a claim on which relief can be granted pursuant to Rule 12(b)(6).
Discussion 1. The School District's Motion to Dismiss Epicentre's Breach of Contract Claim
The Federal Rules of Civil Procedure set forth minimal requirements for a plaintiff to meet when filing a complaint. Luckett v. Turner, 18 F. Supp. 2d 835, 838 (W.D. Tenn. 1998).
The [Rules] provide for a liberal system of notice pleading. The Rules do not require a claimant to set out in detail the facts upon which [it] bases [its] claim. To the contrary, all the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.EEOC v. J.H. Routh Packing Co., 246 F.3d 850, 851 (6th Cir. 2001) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Thus, "[a] plaintiff will not be thrown out of court for failing to plead facts in support of every arcane element of [its] claim." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 437 (6th Cir. 1988).
Despite the liberal "notice pleading" standard, a claim should be dismissed under Rule 12(b)(6) when "it appears beyond doubt that plaintiff can prove no set of facts in support of [its] claim which would entitle him to relief." Fidel v. Farley, 392 F.3d 220, 226 (6th Cir. 2004). Dismissal is proper if plaintiff has failed to plead "either direct or inferential allegations of the material elements of the claim." Wittstock v. Mark A. Van Sile, Inc., 330 F.3d 899, 902 (6th Cir. 2003). In this case, Epicentre has alleged that the School District breached the contract between the School District and Riverside. Therefore, to survive a 12(b)(6) motion, Epicentre's complaint must contain the material elements of a breach of contract action.
Under Ohio law, the elements of a breach of contract are: "1) the existence of a valid contract; 2) performance by the plaintiff; 3) breach by the defendant; and 4) damage or loss to the plaintiff." Res. Title Agency, Inc. v. Morreale Real Estate Servs., 314 F. Supp. 2d 763, 769 (N.D. Ohio 2004) (citing Samadder v. DMF of Ohio, Inc., 154 Ohio App. 3d 770, 778 (2003)).
Epicentre has pled the elements of breach of contract in this case. Paragraph seventeen of the complaint states the existence of a contract. Paragraph eighteen states Riverside fulfilled its contractual obligations. Paragraphs forty-six through forty-eight state the School District failed to fulfill its obligations under the contract. Lastly, paragraph fifty-five states Riverside was damaged.
Epicentre's complaint was not limited to legal and factual allegations. The pleading included a copy of the contract between Riverside and the School District. Under Rule 10(c) "[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." Such exhibits must be considered by the court in determining whether to grant a 12(b)(6) motion. Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001). Consequently, since the contract was attached to the complaint as an exhibit, the terms of the contract must be considered in evaluating the School District's motion to dismiss.
The School District's motion is based on Riverside's alleged failure to comply with the procedural requirements for filing a claim under the contract. The School District contends that Riverside failed to comply with specific condition precedents before filing its claim against the School District. Specifically, the School District claims Riverside did not accompany its claim with a sworn affidavit as required by § 4.7.1 and it did not file its complaint within the time period prescribed by § 4.7.7. As a result, the School District claims Riverside's failure to comply with the contract procedures irrevocably waived its claim.
The School District's argument is not properly borne out in its motion to dismiss. When reviewing a 12(b)(6) motion, "[t]he court must construe the complaint in a light most favorable to the plaintiff, and accept all of [its] factual allegations as true." Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir. 1998). In this case, Epicentre has pled Riverside that Riverside complied with the procedural requirements for filing a claim under the contract. Paragraph thirty-six of Epicentre's complaint states that Riverside "timely submitted" its claim "accompanied by a sworn affidavit executed by an authorized representative of the Contractor stating that the claim complies with subparagraph § 4.[7].1 of the Supplementary General Conditions[.]" Thus, accepting Epicentre's factual allegations as true, as I must when ruling on a 12(b)(6) motion, Riverside complied with the procedural requirements of the contract.
Therefore, the School District's motion to dismiss must be denied. Epicentre has adequately pled the material elements of its breach of contract cause of action. Further, Epicentre pled that it complied with all procedural requirements for filing a claim under the contract. As such, there is a set of facts Epicentre could prove to recover on its claim. Dismissal under Rule 12(b)(6) is therefore improper.
2. Rudolph's Motion to Dismiss Epicentre's Negligence Claim
Under Ohio law, the elements of negligence are: the existence of a legal duty; the defendant's breach of that duty; and damages directly and proximately caused by the defendant's breach. Wallace v. Ohio DOC, 96 Ohio St. 3d 266, 274 (2002).
Epicentre must first show that Rudolph owed a duty to Riverside.
The general rule is there is no duty to exercise reasonable care to avoid purely economic loss to another unless there is contractual privity between the parties. Floor Craft v. Parma Community Gen. Hosp. Assn., 54 Ohio St. 3d 1, 3 (1990) (citations omitted) ("In the absence of privity of contract between two disputing parties the general rule is there is no duty to exercise reasonable care to avoid intangible economic loss or losses to others that do not arise from tangible physical harm to persons and tangible things.").
The only damages alleged by Epicentre in the complaint are intangible economic losses. Consequently, to recover from Rudolph under a theory of negligence Epicentre must show Rudolph and Riverside stood in contractual privity.
a. Contractual Privity Through the Riverside-School District Contract
Epicentre cannot rely on the contract between Riverside and the School District to create contractual privity between Riverside and Rudolph. Section 1.1.2 of the contract between Riverside and the School District states, "[t]he Contract Documents shall not be construed to create a contractual relationship of any kind . . . (2) between the Construction Manager and Contractor." Under the plain meaning of this clause, Riverside bargained away any rights to construe a contractual relationship between itself and Rudolph.
Moreover, the parol evidence rule prevents Epicentre from introducing contrary evidence of the clause's meaning. "The parol evidence rule is a rule of substantive law that prohibits a party who has entered into a written contract from contradicting the terms of the contract with evidence of alleged or actual agreements." Ed Shory Sons v. Francis, 75 Ohio St. 3d 433, 440 (1996). Therefore, if Epicentre wants to show a contractual relationship between Riverside and Rudolph existed, it must show the relationship existed through conditions outside the terms of the contract.
b. Contractual Privity Through Agency
Epicentre claims a contractual relationship between Riverside and Rudolph existed because Rudolph was the School District's agent. Epicentre claims that because Rudolph was the School District's agent, Riverside and Rudolph were in privity of contract.
When reviewing a Rule 12(b)(6) motion a court "must construe the complaint in a light most favorable to the plaintiff, and accept all of [its] factual allegations as true." Bloch, 56 F.3d at 677. "The court, however, need not accept as true legal conclusions or unwarranted factual inferences." Eubanks v. SBSK Fin. Group, Inc., 385 F.3d 894, 897 (6th Cir. 2004).
Epicentre's characterization of Rudolph as an agent of the School District is a legal conclusion. Tanksley Assocs. v. Willard Indus., 961 F. Supp. 203, 207 (S.D. Ohio 1997). Yet, the actual nature of the relationship between the School District and Rudolph cannot be determined on the facts presented in the complaint alone.
In determining whether a relationship is that of a principal/agent or principal/independent contractor, the determining factor is the type and extent of control retained by the principal. Furthermore, this determination of the nature of an employment relationship is to be made on the basis of the particular facts of the case.Id. at 207 (citations omitted).
As a result, for the purposes of Fanning's Rule 12(b)(6) motion, Epicentre's allegation that Rudolph is an agent of the School District must be accepted as true.
Classifying Rudolph as an agent of the School District does not, however, mean it is liable under the School District's contract with Riverside. An agent can be liable under the principal's contract when the principal is undisclosed or nonexistent. Promotion Co. v. Sweeney, 150 Ohio App. 3d 471, 479 (2002). Conversely, when the principal is disclosed, the agent does not become liable for a contract made on behalf of the principal. Id.
In the instant case, the School District was a disclosed principal. Riverside directly contracted with the School District with the knowledge that the District was the owner of the project. As an agent of a disclosed principal, Rudolph cannot be said to be in contractual privity with Riverside.
c. Sufficient Nexus as a Substitute for Contractual Privity
Epicentre's final argument is that, even if there is no contractual privity between the parties, Rudolph is nonetheless liable to Riverside because Rudolph exercised enough control over Riverside to create a nexus that can serve as a substitute for contractual privity. When two parties do not stand in contractual privity, "a design professional's significant participation in a contractor's work may create a nexus that substitutes for contractual privity." Nicholson v. Turner/Cargile, 107 Ohio App. 3d 797, 805 (1995) (citing Clevecon, Inc. v. Northeast Ohio Regional Sewer Dist., 90 Ohio App. 3d 215, 220 (1993)). Thus, despite a lack of contractual privity, Epicentre can recover from Rudolph under a theory of negligence if a nexus existed as a substitute for contractual privity.
To determine whether a sufficient nexus exists between a design professional and a contractor, courts look to the amount of control the design professional exercised over the contractor. Clevecon, 90 Ohio App. 3d at 221 (holding a duty arises when a supervising architect wields excessive control over a contractor). See also Nicholson, 107 Ohio App. 3d at 805 (citing Clevecon, 90 Ohio App. 3d at 220-21 ("[A] design professional is not liable for third party economic damages when [it] does not participate in the project or interact with the contractor and signs a standard contract providing the design professional no role in construction means, methods, techniques or procedures; but a design professional who exercises `excessive control over the contractor' through the power to stop the work and give orders about the project is liable for such economic damages."); Ohio Plaza Assocs., Inc. v. Hillsboro Assocs., 1998 WL 394370, at *5 (Ohio App. June 29, 1998) ("To determine whether a sufficient nexus exists between a design professional and a third party, courts look to the degree of control the design professional exerted over the project and the amount of interaction between the design professional and the third party."); Three-C Body Shops, Inc. v. Welsh Ohio, LLC, 2003 WL 360958, at *4 (Ohio App. February 20, 2003) (holding Floor Craft "has been limited to situations in which the parties had no direct interaction with one another.").
In the instant case, it is not clear what level of control Rudolph exercised over Riverside. Epicentre pled Rudolph failed to perform its duty of incorporating Milestone Dates into a Master Project Schedule. This contention does not allege that Rudolph exerted excessive control over Riverside, but that it failed to exercise enough control. Consequently, it appears as though Epicentre has failed to plead sufficient facts to establish a nexus that can serve as a substitute for contractual privity.
However, as stated earlier, the Federal Rules of Civil Procedure set forth minimal requirements for a plaintiff to meet when filing a complaint. Luckett, 18 F. Supp. 2d at 838. "[A]ll the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." J.H. Routh Packing, 246 F.3d at 851 (citing Conley, 355 U.S. at 47).
In the present case, Epicentre pleaded a short, plain statement of the claim that put Rudolph on notice of what Epicentre's claim against it is. It was not necessary for Epicentre to plead every detail of why Rudolph owed a duty to Riverside.
Whether Rudolph actually exercised enough control over Riverside to create a duty is a question more appropriately suited for later adjudication. I can only determine if there is a sufficient nexus that can serve as a substitute for contractual privity after I have been presented with evidence concerning the amount of control Rudolph exerted over Riverside. Therefore, Rudolph's motion to dismiss must be denied. Dismissal under 12(b)(6) is improper.
3. Fanning's Motion to Dismiss Epicentre's Breach of Contract Claim
Epicentre must first show a contractual relationship between Riverside and Fanning. Res. Title Agency, supra, 314 F. Supp. 2d at 769 (reciting elements for a breach of contract claim (citing Samadder, supra, 154 Ohio App. 3d at 778).
a. Contractual Relationship Through the Riverside-School District Contract
Just as Epicentre could not use the contract between Riverside and the School District to create a contractual relationship between Rudolph and the District, it cannot do so with regard to Fanning. Section 1.1.2 of the contract between Riverside and the School District states, "[t]he Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and the Contractor."Thus, Riverside bargained away any rights to construe a contractual relationship between itself and Fanning.
Therefore, if Epicentre wants to show the existence of a contractual relationship between Riverside and Fanning, it must show the relationship existed through conditions outside the terms of the contract.
b. Contractual Relationship Through Agency
Similar to Epicentre's claim against Rudolph, Epicentre claims a contractual relationship between Riverside and Fanning arose because Fanning was the School District's agent. Epicentre claims this relationship makes Fanning liable under the District's contract with Riverside.As stated earlier, the nature of the relationship between the School District and Fanning cannot be determined on the facts presented in the complaint alone. Tanksley, 961 F. Supp. at 207. Therefore, for the purposes of Fanning's 12(b)(6) motion, Epicentre's allegation that Fanning is an agent of the School District must be accepted as true.
However, like the result with regard to Rudolph's motion, classifying Fanning as an agent of the School District does not mean it is liable under the District's contract with Riverside. The School District was a disclosed principal vis-a-vis Fanning. Therefore, as an agent of a disclosed principal, Fanning cannot be said to be liable under the contract with Riverside.
c. Contractual Relationship Through Independent Representations
Epicentre next claims Fanning is liable as the School District's agent because it made independent representations to Riverside. Epicentre cites Waterloo Coal Co. v. Komatsu Mining Sys., 2003 WL 124137, at *4 (S.D. Ohio Jan. 9, 2003), for the proposition that an agent is liable for a contract entered into on behalf of a principal if it is shown that the agent made independent representations or adopted the principal's representations as its own. The Waterloo court explained that this narrow exception giving rise to an agent liability is limited to situations where the agent expressly tells a third party a certain term is covered under a contract when it is not. Id. at *5.
Epicentre alleges in its response to Fanning's motion to dismiss that Fanning represented to Riverside that "it would require [Rudolph], the [construction] manager, to incorporate the contract Milestone Dates into a Master Project Schedule, along with the Contractors intended sequence of work." This allegation misrepresents what Epicentre actually pled in the complaint. Epicentre's complaint alleges in paragraph 107 that Fanning was "suppose[d]" to require Rudolph to perform these duties as part of the contract between Riverside and the School District. Consequently, any representations made by Fanning concerning Milestone Dates could not have been independent from the School District-Riverside contract.
Thus, even if Fanning were classified as the agent of the School District, it cannot be held liable under the School District's contract with Riverside. The School District was a disclosed principal and the complaint does not allege that Fanning made and independent representations.
d. Sufficient Nexus as a Substitute for a Contractual Relationship
Epicentre's final argument is that even if no privity of contract existed between Fanning and Riverside, Fanning is still liable to Riverside because there is a sufficient nexus that can serve as a substitute for privity. Epicentre claims this nexus can be established because Fanning exercised excessive control over Riverside during the construction project.
This rule cited by Epicentre is inapplicable in this situation. The cases which discuss substituting excessive control for privity of contract pertain to situations when a plaintiff is attempting to bring a tort action to recover economic damages. E.g. Floor Craft, 54 Ohio St. 3d at 8 (holding no nexus existed to serve as a substitute for contractual privity in the contractor's negligence claim against the architect); Clevecon, 90 Ohio App. 3d at 221 (holding when an architect wields excessive control over the contractor, a duty arises to on the part of the architect to perform his functions without negligence as they affect the contractor.); Welsh, 2003 WL 360958, at *4 (holding extensive and direct interaction between parties created a substitute for lack of privity re. claim for negligent representation).
Epicentre has pled a cause of action for breach of contract, not negligence. Epicentre has failed to cite, and I cannot find, any cases in which excessive control serves as a substitute for privity of contract in a breach of contract claim. Consequently, Epicentre's argument cannot be accepted. If excessive control could be substituted for privity of contract in a breach of contract case, then the existence of a contract would no longer be necessary to maintain a breach of contract action.
Therefore, Fanning's motion to dismiss must be granted. Epicentre has failed to allege sufficient facts to establish the existence of a contractual relationship between Riverside and Fanning, a necessary element of a breach of contract claim. As a result, Epicentre has failed to plead a set of facts on which it could recover under at trial. Dismissal under 12(b)(6) is proper.
Furthermore, in its response to Fanning's motion to dismiss, Epicentre has asked this court leave to file a further amended complaint if Fanning's 12(b)(6) motion is granted. However, any attempt by plaintiff to amend its complaint must be presented to the court as an affirmative motion, not in a responsive brief. Therefore, I do not reach the issue of whether Epicentre may or may not file another amended complaint. I note, however, that in light of the outcome of the Fanning's motion, that it and the undersigned expect that any desire to seek leave to file an amended complaint will take full cognizance of a litigant's responsibilities under Rule 11 of the Federal Rules of Civil Procedure.
Conclusion
In light of the foregoing,
it is, therefore,
ORDERED THAT
1) The School District's motion to dismiss be, and the same hereby is denied.
2) Rudolph's motion to dismiss be, and the same hereby is denied.
3) Fanning's motion to dismiss be, and the same hereby is granted.
4) A scheduling conference is set for March 28, 2005 at 3:30 p.m.
So ordered.