Summary
holding that engineering services provided in construction of storm water retention lakes were professional services and therefore not subject to implied warranty of good and workmanlike performance
Summary of this case from Garland Dollar General LLC v. Reeves Development, LLCOpinion
No. 3:98-CV-2913-M.
September 8, 2000.
MEMORANDUM OPINION AND ORDER
Before the Court is a motion filed January 26, 2000 by Third-Party Defendant Lockwood, Andrews Newman, Inc. ("LAN") for summary judgment. According to Third-Party Plaintiff/Defendant the City of Dallas ("the City"), LAN is liable to the City for "consequential damages," breach of contract and breach of implied warranty. See First Amended Third-Party Complaint. Having considered the record and the applicable law, for the reasons stated below, the Court GRANTS Third-Party Defendant LAN's Motion for Summary Judgment against the City, except as to the very narrow issue of attorneys' fees under a cognizable breach of contract action.
A hearing was held before the Court on this matter on March 16, 2000. At the hearing, the Court granted the City leave to replead its Complaint against LAN. As a result of such repleading, the aforementioned causes of action were pled in the City's First Amended Third-Party Complaint, filed March 21, 2000.
I. Background
This is an economic loss case involving the Middlefield Road Levy Project at the Southside Waste Water Treatment Plant in Dallas, Texas. Plaintiff, Interstate Contracting Corporation ("Interstate"), was the general contractor on the project arid is claiming in excess of $4,000,000 in damage on its own behalf and on behalf of its subcontractor, Third-Party Defendant Mine Service, Inc. ("MSI"). The City joined as Third Party Defendant the engineering firm on the project, Lockwood, Andrews Newman, Inc. ("LAN"), claiming indemnity and contribution. LAN filed a third party action against MSI. MSI had previously sued LAN in connection with the same project. That suit was settled.
See Case No. 10896-E in the 101st Judicial District Court of Dallas County. Pursuant to the terms of the settlement agreement, LAN paid $250,000 and MSI agreed to indemnify LAN up to the sum of $250,000 if LAN is found liable to the City on the City's claims for indemnity and contribution. (Third Party Defendant MSI's Answer to Third Party Complaint).
This suit involves a construction contract between Interstate and the City. Under the contract, Interstate agreed to perform work for the City that included the excavation of dirt and the construction of two storm water detention lakes and three levees. After contracting with the City, Interstate further subcontracted work to MSI. MSI then contacted LAN and obtained soil information and construction plans and specifications for the project.
According to Interstate, while working on the project, it and MSI discovered problems with the soil information and the plans and specifications provided by LAN (collectively, "plans and specifications"). Specifically, Interstate alleges that the plans and specifications represented that the two storm water detention lakes contained sufficient suitable soil to "borrow" for use in constructing the levees. However, according to Interstate, material excavated from the detention lakes consisted primarily of sand and other unsuitable material that failed to satisfy the contract specifications. Interstate further alleges that, unbeknownst to Interstate and MSI, these "borrow areas" had been designated and used as a "spoil dump" from previous city projects. Finally, Interstate alleges that the plans and specifications contained incorrect survey coordinates and alignment data and erroneous levee foundation design information. (Pl. Orig. Comp. at 2-5).
On December 11, 1998, Interstate filed this action alleging diversity jurisdiction, and asserting claims for breach of contract, quantum meruit, breach of implied warranty, and fraudulent inducement. Interstate alleged that the City provided it and MSI with misleading subsurface information, and made numerous misrepresentations in the plans and specifications. On May 24, 1999, the Court granted in part the City's Motion to Dismiss, disposing of Plaintiff's fraudulent inducement and punitive damages claims.
On June 22, 1999, the City filed its Original Third-Party Complaint and Jury Demand, alleging that if it is found that the plans and specifications contained misrepresentations or that subsurface information was missing, it innocently passed through those plans and specifications prepared by LAN. Therefore, the City argues it is entitled to damages resulting from LAN's breach of contract and breach of implied warranty.
The subject Motion for Summary Judgment was filed by LAN on January 26, 2000. The City did not respond.
II. Summary Judgment Standard
LAN is not automatically entitled to summary judgment as a result of the City's failure to respond. John v. State of Louisiana (Board of Trustees for State Colleges Universities), 757 F.2d 698, 707-08 (5th Cir. 1985). If LAN fails to discharge its initial burden, the City has no obligation to respond at all. Id. at 708. However, if LAN meets its burden under FED. R. Civ. P. 56, the City cannot survive the motion by resting on mere allegations in its pleadings. Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 199 (5th Cir.), cert. denied, 488 U.S. 926 (1988). Although the Court is not permitted to enter a default summary judgment by virtue of the City's failure to respond, it may accept as undisputed the facts described in support of LAN's Motion. Everslay v. Mbank Dallas, 843 F.2d 172, 174 (5th Cir. 1988). Once LAN meets its Rule 56 burden, summary judgment is appropriate if the City (as the non-movant) fails to set forth specific facts, by affidavits or otherwise, showing that there is a genuine issue of fact for trial. Topalian v. Everman, 954 F.2d 1125, 1132 (5th Cir.), cert. denied, 506 U.S. 825 (1992); see also Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) ( en banc) (once movant for summary judgment meets burden imposed by Rule 56, non-movant must go beyond pleadings and designate specific facts showing that there is a genuine issue for trial).
III. Analysis and Decision
LAN bases its summary judgment motion on the following: (1) Texas does not recognize the existence of an implied warranty with regard to the performance of professional services and no such cause of action exists as a matter of law; (2) the City's claim for breach of contract is a masked claim for indemnity and/or contribution, both of which are barred as a matter of law under these circumstances; and (3) the City's stated damage of "sums it may be required to expend by reason of any judgment obtained against it by Plaintiff' and "sums it may be required to expend in defense of Plaintiffs action" are not "consequential damages" and may not be recovered by the City as such are in fact claims for indemnity and/or contribution, which are here barred as a matter of law. Each of LAN's arguments will be analyzed in turn.
Plaintiff' is Interstate Contracting Corporation.
A. Breach of Implied Warranty as to Professional Services Is Not a Recognizable Claim under Texas Law
LAN argues that the City's claim for breach of an implied warranty is without merit because Texas does not recognize implied warranties of good and workmanlike performance of purely professional services. LAN is correct. See Dennis v. Allison, 698 S.W.2d 94, 95 (Tex. 1985). In Dennis, the Texas Supreme Court, reasoning that an implied warranty was a strict liability concept developed by courts in an effort to find some ground of strict liability which would make a seller of goods an insurer of those goods, held that persons receiving professional services have other remedies to redress wrongs committed against them. Accordingly, the Texas Supreme Court held that there is no implied warranty for purely professional services under Texas law. Id.
But see Federal Deposit Ins. Corp. v. Nathan, 804 F. Supp. 888 (S.D. Tex. 1992) (the issue of whether an implied warranty exists in the rendition of legal services has not been finally determined).
However, Dennis has been questioned by various courts in light of the Texas Supreme Court's later decision in Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349 (Tex. 1987). In Melody Home, the Court, while specifically declining to address the issue in the context of professional services, sanctioned an implied warranty cause of action arising from the faulty repair of tangible goods. Id. at 354.
At least one Texas court of appeals has stated that Dennis is no longer good law after Melody Home, relying on the fact that in Melody Home, the Texas Supreme Court did not expressly disallow the concept of an implied warranty arising from purely professional services. See White Budd Van Ness Partnership v. Major-Gladys Joint Venture, 798 S.W.2d 805, 812-13 (Tex.App.-Beaumont 1990, writ dism'd). Accordingly, the White Budd court found that an implied warranty arose under Texas law from the rendition of professional services.
The Texas Supreme Court dismissed the appeal without considering the issue of the viability of Dennis because the defendant violated the briefing rules of the Court.
This Court finds the reasoning of the court in White Budd unpersuasive. As another Texas court of appeals case noted:
First, Texas has not recognized an implied warranty for good and workmanlike performance of purely professional services. The existence of such an implied warranty was expressly rejected in Dennis v. Allison (citation omitted). [Plaintiff] argues, however, that in Melody Home Manufacturing Co. v. Barnes (citation omitted) the Texas Supreme Court has indicated that it is `willing to overrule' Dennis. Whether or not one can read into Melody Home, a `willingness' to overrule Dennis, the court did not actually do so . . . [The] court has not overruled Dennis and because it has not applied an implied warranty of good and workmanlike service to all service transactions, Dennis remains good law.Chapman v. Wilson, 826 S.W.2d 214, 217 (Tex.App.-Austin 1992, writ denied).
This Court finds the analysis of the Chapman court convincing. Furthermore, this Court finds dispositive Brooks, Tarleton, Gilbert, Doublas Kressler v. United States Ins. Co., 832 F.2d 1378 (5th Cir. 1987), which found, in a professional services context, that Melody Home does not overrule Dennis. Id. at 1379. Accordingly, this Court holds that no claim exists under Texas law for breach of an implied warranty of good and workmanlike performance for professional services. Since it is undisputed that LAN's services with regard to the underlying dispute were engineering services, which are purely professional services, said claim is DISMISSED WITH PREJUDICE.
B. The City's Breach of Contract Claim Is Really a Claim for Indemnity/Contribution
Next, LAN contends that the City's claim for breach of contract is really a masked claim for indemnity and/or contribution, both of which are barred under these facts as a matter of law. First, the Court must determine if the City's claim is truly a breach of contract claim, or merely a claim for indemnity and/or contribution.
Although the City couches its claim against LAN as one for "breach of contract," based on the City's First Amended Third-Party Complaint, the remedy being sought is that of indemnity and/or contribution. Specifically, the City prays that "in the event of an adverse judgment against the City on the ground that the City provided defective plans, specifications, or subsurface information, this Court render judgment against LAN for all damages caused by its one or more breaches of contract . . . including all sums the City may be required to pay [Interstate] . . ." First Amended Third-Party Complaint at 4. Such language requests contribution and/or indemnity based on the underlying claim asserted against the City by Interstate. See CBINA-CON, Inc. v. UOP Inc., 961 S.W.2d 336, 337 (Tex.App.-Houston [1st Dist.] 1997, writ denied) (third-party plaintiff asserting a contribution claim when such claimed right to recover is contingent on a judgment against defendant in the underlying action). The City's entire prayer is contingent upon the opening phrase "[i]n the event of an adverse judgment." See supra. This is nothing more than a claim for contribution and/or indemnity, and is therefore DISMISSED for reasons stated below.
Also, the City's claim for "consequential damages" is also DISMISSED WITH PREJUDICE as it too is pled as an indemnity and/or contribution claim. Specifically, the City states that it should be awarded those damages that it will be "required to expend by reason of any judgment obtained against it by Plaintiff." See First Amended Third-Party Complaint at 4. For the reasons enunciated above, this is a claim for indemnity and/or contribution and is inappropriate under the circumstances of this case.
Clearly the City had the right to obtain a legally enforceable indemnity agreement with LAN. However, at the March 16, 2000 hearing in this case, the City stipulated that its contractual indemnity claim was without merit (and the Court thus dismissed such claim with prejudice in its March 16, 2000 Order), and since under the authority of BB Auto Supply, Sandpit Trucking Co. v. Central Freight Lines, 603 S.W.2d 814 (Tex. 1980) there is no common law right to indemnity under the circumstances in this case, the only plausible claim the City might make at this point is one for contribution. Accordingly, the Court now turns to the City's claim for contribution.
The Texas Supreme Court has recognized only two exceptions to the rule that common law indemnity is no longer available. First, common law indemnity survives in products liability actions to protect an innocent retailer in the chain of distribution. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 432 (Tex. 1984); General Motors Corp. v. Simmons, 558 S.W.2d 855, 860-61 (Tex. 1977). Second, common law indemnity survives in negligence actions to protect a defendant whose liability is purely vicarious in nature. Aviation Office of America, Inc. v. Alexander Alexander of Texas, Inc., 751 S.W.2d 179, 180 (Tex. 1988); Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 8 19-20 (Tex. 1984); Knutson v. Morton Foods, Inc., 603 S.W.2d 805, 814 (Tex. 1980) (Garwood, J., concurring). Neither of these exceptions are applicable to the instant case: the City is not an innocent retailer in the chain of distribution and its liability would not be purely vicarious in nature. See Hardy v. Bouygues Offshore USA, Inc., 949 F.2d 826, 831 (5th Cir. 1992).
Under Texas law, there is a very limited right of contribution on a breach of contract claim; that is, a contribution right exists among co-guarantors on a note, or in any situation where there is an implied promise of co-obligors to pay their proportionate shares of a common obligation. See Diversified Mortgage Investors v. Lloyd D. Blalock Gen. Contractor, Inc., 576 S.W.2d 794, 807 (Tex. 1978); McKelroy v. Hamilton, 130 S.W.2d 1114, 1116 (Tex.Civ.App.-Waco 1939, no writ); Miller v. Miller, 400 S.W.2d 4, 7 (Tex.Civ.App.-Tyler 1966, writ ref'd n.r.e.). Such a right is not applicable to the facts at hand. In most instances, contribution is not appropriate relief for a breach of contract cause of action. See TEX. Civ. PRAC. REM. CODE. ANN. §§ 33.001, 33.011 (Vernon 1987); See also CBINA-CON, Inc. v. UOP, Inc., 961 S.W.2d at 339-40; Hunt v. Ellisor Tanner, Inc., 739 S.W.2d 933 (Tex.App.-Dallas 1987, writ denied).
The City and LAN were never co-obligors on a note, or co-guarantors of a promise to Interstate. Instead, LAN provided the City with plans and specifications under a contract that was signed only by LAN and the City. The City's right to claim contribution is derivative of Interstate's right to recover from LAN. See CBI at 339. Because LAN was never a party to the contract between Interstate and the City, Interstate has no right to seek contribution from LAN under the contract between Interstate and the City. Id. Accordingly, the City has no right to seek contribution from LAN under a breach of contract cause of action.
After a review of the underlying pleadings in this case, the Court finds that the alleged injury asserted by Interstate "sounds in contract alone." See Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986); Southwestern Bell Telephone Co. v. Delanney, 809 S.W.2d 493 (Tex. 1991). In other words,
A summary of Interstate's allegations of wrongdoing are that the City: (1) failed and refused to enter a change order amending and correcting the misleading construction plans and specifications; (2) constructively changed the scope of the work by requiring the contractor to blend unsuitable soil taken from the storm water detention lakes with suitable soil; (3) deleted significant portions of the levee construction; (4) failed to timely correct the erroneous and misleading survey coordinates, alignment data and defective levee foundation design information as set forth in the construction plans and specifications; (5) required Interstate, through MSI, to perform extra work without a change order and specifically refused to compensate Interstate and MSI for extra cost; (6) was in a superior position to know whether plans and specifications were accurate and sufficient for the work performed and Interstate relied on the City's superior knowledge; (7) made material misrepresentations to bidders which were false and the City knew such material representations to be false. See Interstate's Original Complaint, filed December 17, 1998. The Original Complaint alleges four causes of action: breach of contract, quantum merit, breach of implied warranty, and fraudulent inducement. However, the Court entered an Order on May 24, 1999, disposing of the fraudulent inducement claim. The Court concludes that the remaining claims arise out of the contractual relationship between Interstate and the City.
[w]hen the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone. [citations omitted] [Plaintiff's] injury was that the house they were promised and paid for was not the house they received. This can only be characterized as a breach of contract.Jim Walter Homes, Inc., 711 S.W.2d at 618.
Similarly, Interstate's injury, that of damages and lost profits, stems from the economic loss caused by the City's alleged failure to perform under the contract by providing the faulty plans and specifications. Although a claim may be pleaded as something other than breach of contract, the claim is for breach of contract if it is clear that the plaintiff is seeking to recover the benefit of its bargain with the defendant. Delanney, 809 S.W.2d 493 (Tex. 1991). It is clear in this case that Interstate's claim against the City is merely an attempt to recover the "benefit of its bargain" with the City. Accordingly, since Interstate's injury "sounds in contract alone," and since there is no right of contribution for breach of contract under such circumstances, such claim must be and hereby is DISMISSED WITH PREJUDICE.
LAN also argues that the City's contribution claim is inappropriate since it settled its claims with MSI, and therefore it is a "settling person" under TEX. Civ. PRAC. REM. CODE § 33.015(d). The Court does not reach that issue.
Although the Court DISMISSES the City's "breach of contract" claim, the Court is not persuaded that the City's claim for attorneys' fees is not recoverable as damages under a true breach of contract theory. Therefore, LAN is hereby granted leave to file a Motion to Dismiss to address this issue. Such motion should be filed within 30 days of the date of this Order.
IV. CONCLUSION
For the reasons stated above, the Third-Party Defendant's Motion for Summary Judgment is GRANTED. The City's claims for implied warranty and for breach of contract (except for attorneys' fees) are DISMISSED WITH PREJUDICE.
SO ORDERED.