Opinion
Case No. 03-2036-JWL
September 23, 2003
MEMORANDUM ORDER
Plaintiff filed suit against defendant to recover amounts plaintiff paid to its insured. Defendant moves to dismiss plaintiff's complaint on the grounds that plaintiff failed to join the real party in interest and lacks standing to sue defendant. Defendant further asserts that the economic loss doctrine bars plaintiff's recovery in this case. As set forth below, defendant's motion to dismiss is denied subject to plaintiff filing an amended complaint, as described below, no later than October 10, 2003.
Discussion
On May 3, 2001, after a heavy rainstorm, the roof on a commercial warehouse building in Lenexa, Kansas collapsed, causing nearly $800,000 in damage. Defendant is the roofing contractor that built the roof in 1981 and rebuilt the roof after the May 2001 collapse. According to plaintiff, defendant also agreed to maintain the roof. Plaintiff asserts that the roof collapsed due to defendant's actions.
Plaintiff issued a policy of insurance to Mid America Management Company, the managing agent for West Roads Limited Partnership, the owner of the property. Plaintiff now seeks to recover from defendant the amounts it paid to Mid America Management Company on Mid-America's claim for business interruption and repair expenses. Defendant moves to dismiss plaintiff's complaint on the grounds that plaintiff paid a claim to an entity that had no ownership interest in the building, was not a tenant in the building and, thus, had no insurable interest in the building. According to defendant, then, plaintiff is not the real party in interest to sue for business interruption or repair costs.
As plaintiff highlights in its response, however, West Roads Limited Partnership, the owner of the property, is an "insured" under the policy issued to Mid America. Specifically, the policy defines "The Insured" as follows:
The Mid America Management Corporation and its affiliated, subsidiary, and associated companies and/or corporations and the insured's interest in partnerships and joint ventures as now exist or may hereafter be constituted or acquired and any party in interest which the insured is responsible to insure.
Policy at 1 (emphasis added). Plaintiff has submitted the affidavit of Peter DeRooy, Chief Financial Officer of Mid America, in which Mr. DeRooy states that Mid America, pursuant to the Management Agreement executed by Mid America and West Roads, is responsible for securing property insurance for the property at issue and is responsible for handling all insurance-related issues including settling property insurance claims with the property insurer.
For purposes of defendant's motion to dismiss, then, plaintiff has set forth sufficient facts demonstrating that the property owner was one of its insureds, that the property owner has been paid for the loss, and that plaintiff is asserting the rights of the owner pursuant to a subrogation clause. Stated another way, defendant has failed to meet its burden of showing that plaintiff is not the real party in interest and defendant's motion to dismiss on this issue, then, is denied. See King Airway Co. v. Public Trustee of Routt County, 1997 WL 186256, at *5 (10th Cir. Apr. 17, 1997) (party asserting that opposing party is not the real party in interest has the burden of showing that the party is not the real party in interest); 6A Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1554 (1990) (objection to plaintiff's status as real party in interest generally treated as "something in the nature of an affirmative defense"). However, plaintiff's Amended Complaint, as defendant suggests, does not presently indicate that plaintiff is asserting the rights of the owner or that the owner was insured by plaintiff. Thus, plaintiff is required to amend its complaint to set forth those facts.
Defendant urges in its reply that plaintiff cannot maintain this subrogation action because the insurance policy expressly denies plaintiff the right to pursue relief against a vendor or supplier if its insured objects. According to defendant, the affidavits submitted by plaintiff clearly establish that the insureds object to the pursuit of any action against defendant. The court declines to address this argument for two reasons. First, it was raised for the first time in defendant's reply brief. See Minshall v. McGraw Hill Broadcasting Co., 323 F.3d 1273, 1288 (10th Cir. 2003) (argument raised for the first time in reply brief is waived) (citing Coleman v. B-G Maintenance Management, 108 F.3d 1199, 1205 (10th Cir. 1997) (issues not raised in the opening brief are deemed abandoned or waived)). Second, defendant has failed to provide to the court a copy of the pertinent policy language. Without such language, the court cannot ascertain whether the affidavits implicate that provision of the policy.
Defendant also asserts in its reply brief that plaintiff is not the real party in interest because plaintiff has not come forward with any evidence that the loss has been paid in full. See 6A Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1546 (1990) (general rule in federal courts is that if the insurer has paid the entire claim, it is the real party in interest). Again, the court declines to address this argument as it was raised for the first time in defendant's reply brief.
Defendant next asserts that plaintiff's alleged damages constitute economic losses and that Kansas law does not permit recovery of such damages absent privity of contract. See Hydro-Flex Corp. v. Giant Finishing Inc., 1995 WL 584718, at *5 (D. Kan. Sept. 5, 1995). According to defendant, the only entity that has a contractual relationship with defendant is CB Richard Ellis, the local property manager, and plaintiff has shown no relationship between it and CB Richard Ellis. The court rejects this argument, subject to plaintiff amending its complaint to clarify that CB Richard Ellis, as the local property manager, was acting on behalf of the property owner (or as the owner's agent) when it contracted with defendant to perform various work on the roof of the property. In other words, because plaintiff insured the owner of the property and if CB Richard Ellis is an agent for the owner, then plaintiff would have privity of contract in this case.
The final argument presented in defendant's motion to dismiss is that plaintiff cannot assert a negligence claim against defendant because the economic loss rule precludes a party from suing in tort for economic losses. The economic loss rule is designed to preclude plaintiff's from circumventing the law of contract and seeking recovery in tort for what in essence is merely a claim of damages for breach of contract. United Int'l Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1226 (10th Cir. 2000). As applied in Kansas, the economic loss rule states that a buyer of defective goods cannot sue in tort where the only injury consists of damage to the goods themselves. Koss Constr. Co. v. Caterpillar, Inc., 25 Kan. App. 2d 200, 205 (1998). In other words, tort recovery is limited to damage to the plaintiff's property other than the defective product itself. Id. At this early stage in the litigation, the court cannot say as a matter of law that plaintiff cannot maintain a negligence action against defendant. In that regard, it does not appear that the "only injury consists of damage" to the goods themselves ( i.e., the roof constructed by defendant or screens placed by defendant over the downspout scuppers). Indeed, plaintiff appears to be seeking recovery for damage to the building itself and for business interruption rather than damage solely to the roof (or screens) themselves. Moreover, it is unclear whether the economic loss doctrine would apply to this case at all. According to plaintiff, and as described in its amended complaint, it is not seeking to hold defendant liable for a defective product; it is seeking to hold defendant liable for negligently placing screens over the downspout scuppers. Defendant has not explained how the economic loss rule applies in the absence of any allegations of a defective product. The motion to dismiss, then, is denied on this issue. IT IS THEREFORE ORDERED BY THE COURT THAT defendant's motion to dismiss (doc. #23) is denied subject to plaintiff filing an amended complaint, as described in this order, on or before October 10, 2003.
While defendant asserts a number of additional arguments in its reply brief, the court will not address these arguments because they were not raised in defendant's initial motion. See supra note 1.