Summary
recognizing an exception to the economic loss doctrine in residential construction cases based in tort to recover damages resulting from negligence
Summary of this case from Edelstein v. GoldsteinOpinion
Civil Action No. 99C-02-007
Submitted: September 28, 1999
Decided: December 22, 1999
John A. Sergovic. Jr., Esquire, Sergovic, Ellis Shirley, P.A., Georgetown, Delaware, Attorney for the Plaintiffs
Roger D. Landon, Esquire, and Jonathan L. Parshall, Esquire, Murphy Spadaro Landon, Wilmington, Delaware, Attorney for the Defendant and Third-Party Plaintiff — Boardwalk Builders, Inc.
William E. Moore, Esquire, William E. Moore Associates, Rehoboth Beach, Delaware, Attorney for the Third-Party Defendant — Complete Restoration Contractors, Inc.
Daniel F. Wolcott, Jr., Esquire, and Matthew E. Fischer, Esquire, Potter Anderson Corroon LLP, Wilmington, Delaware, Attorneys for the Third-Party Defendant — Dryvit Systems, Inc.
Robert G. Gibbs, Esquire, Wilson, Halbrook Bayard, P.A., Attorney for the Third-Party Defendant — James Hricko
Richard S. Cobb, Esquire, Duane, Morris Heckscher LLP, Wilmington, Delaware, Attorney for the Third-Party Defendant — Goslee Roofing Company, Inc.
Allan Wendelburg, Esquire, Wendelburg, McCcullough McKenty, P.A., Wilmington, Delaware, Attorney for the Third-Party Defendant — Weather Shield Manufacturing, Inc.
MEMORANDUM OPINION
Theodore and Judy Marcucilli filed this suit against the Defendant, Boardwalk Builders, Inc. ("Boardwalk"), seeking damages for alleged defects in the construction of their home. Boardwalk then filed third-party complaints against others involved in the design and construction process. In response to these complaints, two third-party defendants, Dryvit Systems, Inc. ("Dryvit") and Complete Restoration Contractors, Inc. ("CRC"), have filed motions to dismiss. This is the Court's decision on the motions.
STATEMENT OF FACTS
As this is a motion to dismiss, the Statement of Facts is developed from the pleadings at issue, the complaint and third-party complaint. See Spence v. Funk, Del. Supr., 396 A.2d 967, 968 (1978).
Theodore J. Marcucilli and Judy G. Marcucilli, the Plaintiffs, reside in Bethany Beach, Delaware. On December 14, 1991, the Marcucillis contracted with the Defendant, Boardwalk, for the erection of a custom designed and built home. One requirement of that contract was that the exterior of the home was to consist of the Dryvit System as developed by Dryvit Systems, Inc. This component of the home is also known as the Exterior Insulation and Finish Surface ("EIFS").
The Dryvit System consists of the following components: Dryvit Insulation Board, installed over the plywood sheathing; Dryvit Reinforcing Mesh which is embedded in the priming coat; Panzer Mesh, heavy-duty glass fiber reinforcing mesh at the first floor level and heavy traffic areas; Dryvit Priming/Adhesive, used to adhere insulation board to substrate and to embed reinforcing mesh on the face of the insulation board; and Dryvit Surface Finish, a synthetic plaster material with integrated color. Moreover, the "System" provided that all work must be done by a factory-approved installer in strict accordance with the Manufacturer's instructions. On July 9, 1992, Boardwalk contracted with CRC to install the Dryvit System on the Marcucillis home. After installation, the Marcucillis received a warranty from the manufacturer covering the Dryvit System installed on their home.
On January 13, 1993, Boardwalk delivered a structure to the Marcucillis that was "substantially complete." There were, however, outstanding "punch-list" items that were not completed until October 6, 1997. Sometime after delivery, the Marcucillis discovered that the structure was not watertight. The roof was repaired several times in an effort to stop the leakage problem. In February, 1997, another leak was discovered. The installer of the original roof who also repaired the other leaks, was called in again only to discover that the roof was not the problem this time. This leak was attributed to open caulking joints in the EIFS system around window and door openings.
The Marcucillis obtained an estimate for recaulking from an outside contractor. They were advised that all of the caulking should be removed and replaced by a specialist familiar with the Dryvit System. The Marcucillis tried to contact the original installer but were unsuccessful. Later in 1997 they contacted Dryvit's regional supplier who, in March of 1998, inspected the EIFS system on the home. Michael Donaldson, of EIFS Supply Co., Inc., inspected the home including a core sample taken from the EIFS system on the home. The core sample indicated that the mesh was not the proper color to be a Dryvit System material and that the installation board was not of a type used in the Dryvit System. Only the exterior surface coating was a Dryvit System product. The Marcucillis were now aware that the EIFS system installed on their home was installed incorrectly.
The Plaintiffs claim they are damaged in several ways by the incorrect installation of the EIFS system. First, they are injured in an amount equal to the cost of removing the existing EIFS system and replacing it with a correctly installed Dryvit System. Moreover, the water leaks caused by the improperly installed system have proximately caused other injuries of unknown amount to the interior framing, insulation, drywall, floors, subfloors, carpeting, and trim.
On February 4, 1999, the Marcucillis filed a complaint against their contractor, Boardwalk. The Plaintiffs' theories of recovery are grounded in negligence, breach of contract, and a misrepresentation in violation of the Consumer Fraud Act. The Defendant, Boardwalk, answered on April 16, 1999. In the Answer, the Defendant raised the following affirmative defenses:
1. The Statute of limitations and/or statute of repose bars plaintiffs' claims;
2. Plaintiffs' claims are barred by the doctrines of accord and satisfaction and/or release;
3. Plaintiffs' claims are barred in whole or in part by their own negligence;
4. The Complaint fails to state a cause of action upon which relief may be granted; and
5. Plaintiff's claims are barred in whole or in part by the economic loss doctrine.
In addition to the affirmative defenses listed above, Boardwalk filed the following Third-Party Complaints against five third-party defendants:
1. CRC. A third-party complaint was filed against CRC, the installer of the EIFS system on the Marcucillis home. The complaint against CRC alleges breach of contract, negligence, fraud, and breach of an implied warranty to install the EIFS system in a workmanlike manner.
2. Dryvit Systems, Inc. A third-party complaint was filed against Dryvit Systems, Inc. as the manufacturer of some of the components in the EIFS system installed on the Marcucillis' home. The complaint against Dryvit alleges breach of warranty (both express and implied), negligence in the design of the system, negligent training of the installation crew, and that Dryvit negligently failed to warn that:
— its EIFS system was inappropriate for the climate conditions of the size; — the EIFS system should be inspected for moisture; — regular inspections of the sealants and flashing at intersections between the EIFS system and windows, roofs, doors, and decks needed to be performed; — there was a risk of water intrusion at intersections between the EIFS system and windows, roofs, doors, and decks; — there existed a need for special flashing and sealants around widows and other potential entry points to reduce the risk of water intrusion; and — a manufacturer's representative should be present during the installation of the EIFS system to ensure proper installation.
3. James Hricko. A third-party complaint, alleging an action in negligence, was filed against James Hricko, the architect who designed the structure.
4. Goslee Roofing Co., Inc. A third-party complaint was filed against Goslee Roofing Co., Inc. ("Goslee"), the roofing subcontractor on the project, asserting a claim based on negligence and a breach of the implied warranty to construct the roof in a workmanlike manner.
5. Weather Shield Manufacturing, Inc.. A third-party complaint was filed against Weather Shield Manufacturing, Inc. ("Weather Shield"), the manufacturer of the windows installed in the home, asserting a cause of action founded on: (1) Weather Shield's alleged negligence in the design of the windows and failure to warn that the windows were unsuitable for the structure; and (2) breach of express and implied warranties.
Finally, in addition to the tort and contract claims, Boardwalk also seeks recovery from the third-party defendants based on an implied right to indemnity. The theory being that Dryvit and the others would be liable to Boardwalk because they were primarily liable for the resulting damages.
On July 12, 1999, Third-Party Defendant Dryvit filed a motion to dismiss under Superior Court Rule 12(b)(6). Third-Party Defendant CRC also filed a motion to dismiss. At a hearing before Judge Graves on September 17, 1999, Dryvit presented its Motion to Dismiss. CRC did not present its motion at this time. These two motions are presently before the Court for decision. For the reasons stated below, the Motions of both Dryvit and CRC are denied.
STANDARD OF REVIEW
The Delaware courts have adopted the following standard for reviewing a motion to dismiss:
For the purpose of judging a motion to dismiss a complaint for failure to state a claim, made pursuant to Superior Court Civil Rule 12(b)(6), all well-pleaded allegations must be accepted as true. The test for sufficiency is a broad one, that is, whether a plaintiff may recover under any reasonably conceivable set of circumstances susceptible of proof under the complaint.Spence v. Funk, Del. Supr., 396 A.2d 967, 968 (1978) (internal citations omitted). Moreover, where a third-party complaint incorporates by reference the allegations contained in the original complaint, the Court must accept as true the well-pleaded allegations in both the underlying complaint and the third-party complaint. Precision Air, Inc. v. Standard Chlorine of Delaware, Inc., Del. Supr., 654 A.2d 403, 406 (1995).
MOTION TO DISMISS-DRYVIT Summary of the Arguments
In its Motion to Dismiss, Dryvit addresses each of the theories of recovery which Boardwalk asserts: negligence and breach of contract. In addressing the negligence claim, Dryvit argues that Boardwalk is claiming merely economic losses and that such losses are not recoverable because of the "economic loss doctrine." Moreover, Dryvit asserts that the breach of contract claims must also fail because: (1) Boardwalk is not a party to the express warranty issued by Dryvit; (2) even if it were, the express conditions of the warranty have not been satisfied; and, (3) the warranty expressly disclaims any implied warranties of merchantability and fitness for a particular purpose.
Boardwalk, in opposing the Motion to Dismiss, makes several arguments. First, Boardwalk asserts that the economic loss doctrine does not apply because, in this case, there is damage to "other property." In particular, it alleges that in addition to the damage to the exterior sheathing system, there is also damage to the walls, insulation, and floors from the water leakage. In opposing the motion to dismiss based on the "contract" claims, Boardwalk argues that Dryvit has misconstrued the nature of its claims. The claims, it urges, are in the nature of indemnity claims if Boardwalk is found liable to the Marcucillis based on any breach by Dryvit.
Finally, the original Plaintiffs, the Marcucillis, also filed a response to Dryvit's Motion to dismiss. In it, they argue that, as this is an arbitration case and there has been no extensive discovery as to the applicability of the warranty given by Dryvit, they will be prejudiced if Dryvit is excused at this point in the proceedings.
Discussion Negligence Claims — The Economic Loss Doctrine. "The economic loss doctrine is a judicially created doctrine that prohibits recovery in tort where a product has damaged only itself (i.e., has not caused personal injury or damage to other property) and, the only losses suffered are economic in nature." Danforth v. Acorn Structures, Inc., Del. Supr., 608 A.2d 1194, 1195 (1992) (emphasis original). The Danforth case is the leading case in Delaware concerning the economic loss doctrine in the construction setting. There, the Court found that the economic loss doctrine was "especially" suited to cases where privity of contract does exist. In such cases, it is presumed that the parties to the transaction have allocated the risk of product nonperformance through the bargaining process. Id. at 1200. The "such cases" to which the Court was referring were those involving the construction business.
The Danforth holding, however, was short lived, for in 1996, the Delaware General Assembly passed the Home Owner's Protection Act. See, 6 Del. C. § 3651-52. This Act expressly does away with the economic loss doctrine in certain residential construction cases. The Act provides:
No action based in tort to recover damages resulting from negligence in the construction or manner of construction of an improvement to residential real property and/or in the designing, planning, supervision and/or observation of any such construction or manner of construction shall be barred solely on the ground that the only losses suffered are economic in nature.6 Del. C. § 3652.
The General Assembly stated its intent in passing this particular statute in the Synopsis portion of the House Bill.
This Bill protects home owners by abolishing the economic loss doctrine adopted in Danforth v. Acorn Structures, Inc., Del. Supr., 608 A.2d 1194 (1992) as it applies to actions for negligence in the construction and/or improvement to property used as a residence. The economic loss doctrine prohibits recovery for economic losses caused by the negligent acts of others. Under this Bill, a home owner may recover for such losses. This Bill is intended to apply to any action, regardless of when it occurs, unless otherwise prohibited by law.
138th General Assembly, House Bill No. 519 (Apr. 24, 1996).
Upon the adoption of the Home Owner's Protection Act, the economic loss doctrine no longer applies to preclude negligence actions in cases involving the construction of residential dwellings.
In the case presently before the Court, both parties, in their motion and response, argue the merits and applicability of the economic loss doctrine to the controversy. Neither party, however, fully addresses the effect of the Home Owner's Protection Act on the continued viability of the doctrine. While Boardwalk does acknowledge the Act in a footnote, it goes on to state that it would not apply retroactively. Response of Boardwalk Builders, Inc. to Dryvit Systems, Inc.'s Motion to Dismiss at 2, fn 1 ("Response"). Thus, the key question in deciding this issue is whether the statute applies.
I believe the statute does apply to the present case and that the economic loss doctrine is no longer a bar to a negligence claim in a home construction case. The only reason there is a question of whether the statute applies is that the statute was enacted in 1996 and certain key events giving rise to this litigation occurred both prior to and after the adoption of the statute. For these reasons, there would be some issue of when the cause of action was born. However, if the statute applies retroactively, it does not matter whether the cause of action accrued before or after the adoption of the statute.
It is well settled law in Delaware that "absent a clear legislative intent, Delaware courts will not infer an intention to make an act retroactive." Wilson v. Triangle Oil Co., Del Super., 566 A.2d 1016, 1018 (1989). See also, Chrysler Corp. v. State, Del. Supr., 457 A.2d 345, 351 (1982) ("It is a time-honored principle that this court will not infer an intention to make an act retrospective, and that to give an act a retrospective operation would be contrary to well settled principals of law applicable to the construction of statutes unless it be plainly and unmistakably so provided by the statute."(internal quotation marks omitted)); and Comer v. Getty Oil Co., Del. Super., 438 A.2d 1239, 1242 (1981) ("It is generally recognized that a statute will not be given retroactive application which affects substantive rights, at least in the absence of language showing a clear legislative intent to give retroactive effect.").
In the Wilson case, cited by Boardwalk in its footnote, Judge Steele found that the statute at issue did not apply retroactively. Moreover, the Court pointed out that the proponent of retroactive application could point to no legislative history evincing such an intent. Wilson at 1019 and 1020. In Delaware, legislative intent may be gleaned from either the language of the statute itself or from the Synopsis to the Statute. Use of the Synopsis for mining legislative intent has been sanctioned by the Delaware Supreme Court. See Chrysler at 351; Carper v. New Castle County Bd. of Educ., Del. Supr., 432 A.2d 1202, 1205 (1981).
In the Home Owner's Protection Act, the statute itself gives no hint whether it is to be applied retroactively. The Synopsis, however, shows a clear legislative intent that the Act is to apply retroactively. The General Assembly intended that the Act "apply to any action, regardless of when it occurs, unless otherwise provided by law." House Bill 519, Synopsis (emphasis added). Moreover, I see no statutes or principals of law that would invoke the "unless otherwise provided by law" clause. The statute here is not being applied to a criminal defendant. Thus there are no overarching prohibitions against giving laws effects that would violate Due Process or run afoul of the ex post facto prohibitions. Here, we are dealing with a negligence claim. The economic loss doctrine did nothing to alter the duties that Dryvit owed to others, it merely provided an exception to normal negligence principals of liability. In criminal situations, the defendant will fight the ex post facto application of a statute where the conduct for which he is being charged was not criminal or wrongful at the time of the conduct. For Dryvit to make a similar kind of ex post facto argument against retroactive application of the statute, it would be forced into the unpopular position of arguing that it patterned its conduct based on the exception to tort liability provided by the economic loss doctrine. In effect, "we were purposely acting in a certain way (possibly negligently), in reliance on the exception."
Because this statute, 6 Del. C. § 3652, applies to this case, the economic loss doctrine does not bar Boardwalk's tort claims against Dryvit. Moreover, there is enough evidence in the record before the Court showing a "reasonably conceivable set of circumstances susceptible of proof" at trial. For instance, there is some evidence in the record that raises the question of whether a Dryvit representative supervised the installation of the EIFS system and the extent and adequacy of any installation instructions provided with their products. Dryvit could be negligent depending on how these issues develop at trial. For this reason, the Motion to Dismiss the tort claims against Dryvit is denied.
Breach of Contract Claims. Boardwalk, in its Third-Party Complaint against Dryvit makes two breach of contract claims. First, Boardwalk claims that Dryvit breached its express warranty. Second, it claims that Dryvit breached the implied warranties of merchantability and fitness for a special purpose. Answer and Third-Party Complaint of Boardwalk Builders, Inc. at ¶¶ 55 and 56. In its response to Dryvit's Motion to Dismiss, Boardwalk clarifies their position, stating that "Boardwalk is not suing in its own right for injuries done to it. It seeks indemnity from Dryvit in the event it is found liable to the Marcucillis for, among other theories, the breach of Dryvit's express and implied warranty obligations extended to the Marcucillis." Response of Boardwalk Builders, Inc. to Dryvit Systems, Inc.'s Motion to Dismiss at ¶ 3.
The right to indemnification generally arises either where the parties have executed an express indemnification agreement or where there arises an implied right to indemnification. As there is no allegation in the record before the Court that an express agreement exists, the Court must evaluate Boardwalk's claim as one arising under an implied right to indemnification.
"An implied right to indemnification has been recognized in Delaware." Cumberbatch v. Board of Trustees, Delaware Technical and Community College, Del. Super., 382 A.2d 1383, 1388 (1978) (citing Diamond State Tel. Co. v. University of Delaware, Del. Supr., 269 A.2d 52 (1970)). Further instruction on this issue is found in the companion cases of Council of Unit Owners of Sea Colony East, Phase VI Condominium v. Carl M. Freeman Assoc., Inc.. Del. Super., C.A. No. 86C-AU-49, Martin, J. (April 11, 1989) ("Sea Colony I") and Council of Unit Owners of Sea Colony East, Phase VI Condominium v. Carl M. Freeman Assoc., Inc., Del. Super. C.A. No. 86C-AU-52, Del Pesco, J. (Aug. 20, 1990) ("Sea Colony II"). Judge Martin, in his opinion, stated the law of indemnity as follows:
A right to indemnification can arise through contract or an implied right of indemnity. In the absence of a contract for indemnity an implied right of indemnity may arise only in favor of a party who is secondarily negligent to a third-party, against the primarily negligent party. Also, in the absence of negligence on the part of the proposed indemnitee, a valid cause of action in indemnification will not lie. Sea Colony I at 12.
Judge Del Pesco adopted this statement of the law in her opinion in Sea Colony II.
The Sea Colony litigation arose in a context quite similar to that presently before the Court. In Sea Colony I, the original defendants filed a third-party claim for contribution and/or indemnification against a supplier of roofing materials and installation instructions. Similarly, in Sea Colony II, the same original defendants filed a third-party claim for indemnity and/or contribution against the supplier of exterior plywood aggregate-coated wall panels used in the construction of the condominiums and installation specifications for the wall panels. Both third-party defendants filed motions for summary judgment. In both cases summary judgment was denied because there was a material issue of fact whether the suppliers, even though the materials supplied were not deficient, were responsible for the harm because of negligence in their instructions, specifications, or supervision of the installation of the component parts. Only after a trial could one party be labeled either primarily or secondarily liable — a determination necessary before finding an implied right of indemnity.
The case presently before the Court is factually and procedurally very similar. As noted above, Boardwalk may proceed with its negligence claims against Dryvit. If at the close of the trial the evidence shows that Dryvit was primarily liable for the harm, then Boardwalk may have an implied right to indemnity. Because there is a reasonably conceivable set of circumstances susceptible of proof which may show that Dryvit was liable, Dryvit's Motion to Dismiss is denied.
MOTION TO DISMISS-CRC Summary of the Arguments
CRC, in its Motion to Dismiss, joins in and expressly incorporates the motion filed by Dryvit. CRC also adds two additional arguments for dismissal. First, it argues that a five-year Warranty was provided to the Marcucillis by Dryvit on December 4, 1992 and that the action, whether framed in contract or tort is barred by the statute of limitations. Second, it argues that it has never been notified of any alleged defect in the installation of the EIFS system. Boardwalk, in opposing the Motion, asserts that CRC's primary argument, that any action for indemnification or contribution is time barred, is contradicted by settled Delaware law.
Discussion
Where CRC has adopted the Motion filed by Dryvit, those arguments for dismissal fail for the same reasons as discussed above. In this situation, however, because the relationship between Boardwalk as the contractor and CRC as the installer/subcontractor is likely to be contractual in nature, any action in indemnity may be guided by any indemnity provision in their contract. The record before the Court is not sufficiently developed to indicate whether this is the case.
CRC also argues that the claims are barred by the statute of limitations. Boardwalk, in its Response, clarifies its claims as being for indemnity and/or contribution.
In Delaware the limitations period on a claim for indemnification does not begin to run until the cause of action for indemnity arises or the indemnity suffers damage. The statute of limitations period on an indemnity claim does not begin to run at the time of injury. The point at which the indemnitee suffers loss or damage through the payment of a claim after judgment or settlement is the determining factor. Sea Colony I at 7 (citing Chesapeake Util. v. Chesapeake Potomac Tel., Del. Super., 401 A.2d 101 (1979) and United States Fidelity and Guarantee Co. v. Gray's Adm'rs., Del. Super., 97 A. 425 (1916)).
CRC's Motion to Dismiss is also denied. At this early stage of the proceedings, the limitations period for an indemnification action has not even begun, much less run. Moreover, Boardwalk's Third-Party Complaint evinces a reasonably conceivable set of circumstances susceptible of proof that may indicate that CRC's actions, as the installer of the allegedly defective EIFS system, caused all or some part of the harm giving rise to this litigation.
CONCLUSION
Ultimately, this Court denies both Dryvit's and CRC's Motions to Dismiss. In both cases, and for all theories, Boardwalk has shown a reasonably conceivable set of circumstances susceptible of proof at trial that may allow Boardwalk to recover from both Dryvit and CRC either in whole or in part.
IT IS SO ORDERED.