Opinion
C.A. no. 07C-12-005 THG.
Submitted: July 18, 2008.
Decided: September 11, 2008.
On Defendant Delaware Electric Signal Company's Motion for Summary Judgment.
GRANTED IN PART AND DENIED IN PART
Roger D. Landon, Esquire, Philip T. Edwards, Esquire, Murphy Landon, Wilmington, Delaware.
David C. Malatesta, Jr., Esquire, Kent McBride, P.C., Wilmington, Delaware.
Dear Counsel:
Pending before the Court is Defendant Delaware Electric Signal Company's Motion for Summary Judgment. For the reasons stated herein, that motion is granted in part and denied in part. With the exception of Plaintiffs' claim that Defendant engaged in prohibited trade practices, Plaintiffs' claims are dismissed.
Factual and Procedural Background
On or about December 6, 2005, a fire began in and spread through the Cedar Shores Condominium complex, located in Bethany Beach, Sussex County, Delaware. At the time the fire broke out, a fire alarm system designed, installed, and monitored by Delaware Electric Signal Company ("Delaware Signal") was in place. The fire alarm system was designed, installed, and monitored pursuant to a contract entered into by Cedar Shores Condominium Association ("Cedar Shores") and Delaware Signal on or about October 30, 1997. At the time of the fire, Middlesex Mutual Assurance Company ("Middlesex") insured the buildings that comprise the Cedar Shores Condominium complex. The fire resulted in the complete destruction of one of the complex's buildings and damage to several of the complex's other buildings and structures. Pursuant to the terms of the Middlesex policy, Cedar Shores was required to pay for the first $5,000.00 of the loss as a deductible.
On December 5, 2007, Middlesex and Cedar Shores (collectively, "Plaintiffs") filed a seven-count Complaint against Delaware Signal. The first five counts allege Delaware Signal improperly designed, installed, modified and monitored the fire alarm system and that these failures support findings of breach of contract and negligence. Plaintiffs also allege Delaware Signal engaged in consumer fraud in that it misrepresented, concealed, suppressed and/or omitted relevant material facts with regard to how the fire alarm system would be installed and monitored. Finally, Plaintiffs contend Delaware Signal is strictly liable for the damages arising out of the fire because the fire resulted from Delaware Signal's lease of defective equipment to Cedar Shores.
Delaware Signal answered the Complaint on February 1, 2008. On April 14, 2008, the parties appeared before Superior Court Commissioner Howard for a scheduling conference. At that time, the parties told Commissioner Howard that motions based upon the contract language could result in dismissal of the action and that it would be judicially economical to proceed with dispositive motions prior to the commencement of discovery. Commissioner Howard set a briefing schedule.
Delaware Signal's Opening Brief in Support of Its Motion for Summary Judgment was filed on May 23, 2008. Plaintiffs filed an Answering Brief on July 1, 2008, and Delaware Signal filed its Reply Brief on July 15, 2008. On July 18, the Court heard oral argument from the parties and the matter was submitted for decision. At the hearing conducted on July 18, 2008, the Court specifically questioned Plaintiff's counsel regarding Plaintiffs' initial representation to Commissioner Howard that the matter was ripe for decision. The Court observed that, despite this initial representation, Plaintiffs objected to Delaware Signal's Motion for Summary Judgment in large part based on their repeated assertion that factual findings needed to be made by a trier of fact. After discussion, Plaintiffs' counsel withdrew their assertion that factual findings needed to be made and submitted to the Court that the issues, excluding the allegation of a violation of the consumer fraud statute, are ripe for decision.
Discussion Standard of Review
This Court will grant summary judgment only when no material issues of fact exist, and the moving party bears the burden of establishing the non-existence of material issues of fact. Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979). Once the moving party has met its burden, the burden shifts to the non-moving party to establish the existence of material issues of fact. Id. at 681. Where the moving party produces an affidavit or other evidence sufficient under Superior Court Civil Rule 56 in support of its motion and the burden shifts, the non-moving party may not rest on its own pleadings, but must provide evidence showing a genuine issue of material fact for trial. Super. Ct. Civ. R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). If, after discovery, the non-moving party cannot make a sufficient showing of the existence of an essential element of his or her case, summary judgment must be granted. Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991), cert. denied, 504 U.S. 912 (1992); Celotex Corp., supra. If, however, material issues of fact exist, or if the Court determines that it does not have sufficient facts to enable it to apply the law to the facts before it, summary judgment is inappropriate. Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962).
Merits
I. Contract Enforceability
Delaware Signal cites the contract language in defense of Plaintiffs' claims and in support of its Motion for Summary Judgment. The contract is a two-sided one page document. The first page of the contract is straightforward and consists of four paragraphs and the signature lines. The fourth paragraph reads as follows:
(4) DELAWARE SIGNAL'S LIABILITY. Delaware Signal does not represent or warrant that the alarm system may not be compromised or circumvented; that the system will prevent any loss by burglary, hold-up, fire or otherwise; or that the system will in all cases provide the protection for which it is installed or intended. Subscriber acknowledges that Delaware Signal is not an insurer, that Subscriber assumes all risk for loss or damage to Subscriber's premises or to its contents; that Delaware Signal has made no representations or warranties, nor has Subscriber relied on any representations or warranties, express or implied, except as set forth herein and Subscriber acknowledges that he has read and understands, particularly paragraphs 18 and 19 of this agreement which sets [sic] forth Delaware Signal's obligation and maximum liability in the event of any loss or damage to Subscriber.
Paragraphs 18 is irrelevant to the dispute between the parties. However, Paragraph 19 is relevant and reads as follows:
(19) DELAWARE SIGNAL NOT AN INSURER AND LIQUIDATED DAMAGES. It is understood and agreed by and between the parties hereto that Delaware Signal is not an insurer. Insurance, if any [sic] will be obtained by the Subscriber. Charges are based solely upon the value of the services provided for, and are unrelated to the value to the Subscriber's property or the property of others located in Subscriber's premises. The amounts payable by the Subscriber are not sufficient to warrant Delaware Signal assuming any risk of consequential or other damages to the Subscriber due to Delaware Signal's negligence or failure to perform. The Subscriber does not desire this contract to provide for the liability of Delaware Signal and Subscriber agrees that Delaware Signal shall not be liable for loss or damage due directly or indirectly to any occurrence or consequences therefrom, which the service is designed to detect or avert. From the nature of the services to be performed, it is impractical and extremely difficult to fix the actual damages, if any, which may proximately result from the failure on the part of Delaware Signal to perform any of its obligations hereunder, or the failure of the system to properly [sic] operate with the resulting loss to the Subscriber. If Delaware Signal should be found liable for loss of damage due to a failure on the part of Delaware Signal or its systems, in any respect, its liability shall be limited to the refund to Subscriber of an amount equal to the aggregate of six (6) monthly payments, or to the sum of Two Hundred Fifty ($250.00) Dollars, whichever shall be less, as liquidated damages and not as a penalty, and this liability shall be exclusive. The provisions of this paragraph shall apply in the event loss or damage, irrespective of cause or origin, results directly or indirectly to person or property from the performance or non-performance of the obligations set forth by the terms of this contract, or from negligence, active, or otherwise, of Delaware Signal, its agents or employees.
Paragraph 20, also found on the second page of the contract, reads:
(20) SUBROGATION. Subscriber does hereby for himself and any parties claiming under him, release and discharge Delaware Signal from and against all hazards covered by Subscriber's insurance, it being expressly understood and agreed that no insurance company or insurer will have any right of subrogation against Delaware Signal.
Delaware Signal moves for summary judgment on the grounds that the limitation of liability/liquidated damages clause and the waiver of claims/subrogation clause bar Plaintiffs' claims. In response, Plaintiffs argue the contract provisions should not be given effect because the clauses cited are "unconscionable, not conspicuous, and at most, represent a contract of adhesion." Plaintiffs' Answering Brief at 4. I discuss the arguments in turn.
A. Unconscionability
Plaintiffs' primary argument against enforcement of the contract language cited above is that the limitation of liability/liquidated damages and waiver of claims/subrogation clauses are unconscionable. As previously noted, Plaintiffs' counsel submitted at oral argument that the issue of unconscionability is ripe for decision.
Delaware courts have upheld the enforceability of similar clauses. See Donegal Mut. Ins. Co. v. Tri-Plex Sec. Alarm Sys., 622 A.2d 1086 (Del.Super. 1992). In Donegal, the Superior Court carefully traced the history of and the distinction between limitation of liability clauses and liquidated damages clauses. In that case, the court concluded the contract contained a limitation of liability clause, though that determination was not pivotal to its analysis. 622 A.2d at 1089 (observing, "in cases such as these involving commercial parties, it has been held that there is no difference between a liquidated damages clause, or exculpatory clause, and a liability limitation clause"). Like the contract at issue in Donegal, the contract between Cedar Shores and Delaware Signal is not lengthy and the language concerning the limitation of liability is clear. Moreover, the contract language emphasizes Delaware Signal's limited liability in paragraph (4) of the contract and paragraph (4) cross-references paragraph (19) of the contract, which is even more specific regarding the limitation. Paragraph (4) is located on the first page of the paragraph, just above the signature line of the contract. Finally, the language of the clause upheld in Donegal is virtually identical to the one in this case. See also Rob-Win, Inc. v. Lydia Sec. Monitoring, Inc., 2007 WL 3360036 (Del.Super. Apr. 30, 2007) (upholding a similar limitation of liability/liquidated damages clause); Tandy Corp. v. Fusco Props., L.P., 1996 WL 280774 (Del.Super. Apr. 10, 1996) (enforcing contractual limitation of liability/liquidated damages and waiver of claims/subrogation clauses).
It is apparent that Plaintiffs seek to hold Defendant entirely responsible for the loss arising from the fire. Its argument is unreasonable based upon the language of the contract. The language limiting Defendant's liability is not unreasonable in view of the service Defendant was rendering, which was risk reduction as to life and property, not risk elimination. The contract recognized that, although sometimes things do go wrong, Defendant was not an insurer. In light of the foregoing facts, I can see no reason to declare the clause contained in Delaware Signal's contract unconscionable.
I also find the waiver of claims/subrogation clause to be enforceable. Like the limitation of liability/liquidated damages clause, the waiver of claims/subrogation clause at issue is similar in scope, clarity and intent as those clauses upheld by Delaware courts in the past. See Tandy, 1996 WL 280774; St. Catherine of Sienna Catholic Church v. J.R. Pini Elec. Contractors, Inc., 2000 WL 1211146 (Del.Super. June 27, 2000), aff'd 781 A.2d 695 (Del. 2001). I find the waiver of claims/subrogation clause is not unconscionable as a matter of law.
B. Conspicuousness
Plaintiffs also argue that the contract language should not be enforced because the clauses that Delaware Signal cites in defense to Plaintiffs' claims were not conspicuous. "Conspicuous" is defined in 6 Del. C. § 1-201 as follows:
"Conspicuous", with reference to a term, means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is "conspicuous" or not is a decision for the court. Conspicuous terms include the following:
(A) A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and
(B) Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.
As previously noted, the contract at issue is a two-sided piece of paper. The first page consists of four paragraphs, numbered (1) through (4). The second page, or reverse side, of the document contains paragraphs numbered (5) through (24). The paragraphs found on the first page of the contract appear in larger type than those on the second page. Paragraph (4) on the first page specifically draws attention to paragraphs (18) ("DELAWARE SIGNAL'S OBLIGATION") and (19) ("DELAWARE SIGNAL NOT AN INSURER AND LIQUIDATED DAMAGES"), which are found on the second page. The heading of each paragraph, including paragraph (20) ("SUBROGATION"), is in all capital letters and clearly identifies the subject matter covered by the following paragraph. The combination of these factors leads the Court to the conclusion that the contract terms are conspicuous as a matter of law.
C. Contract of Adhesion
Plaintiffs next assert that the contract between the parties is an adhesion contract. An "adhesion contract" is defined as "A standard-form contract prepared by one party, to be signed by the party in a weaker position, usu. a consumer, who adheres to the contract with little choice about the terms." Black's Law Dictionary 342 (8th ed. 2004). A contract of adhesion is different from a negotiated contract but that fact does not automatically render it unenforceable. Plaintiffs argue that, because Cedar Shores is an organization comprised of homeowners and because Cedar Shores was put in a "take-it-or-leave-it" position, the contract is unconscionable. I find Plaintiffs' argument without merit. The contract between the parties differs from an insurance contract, for example, where the courts have strongly construed the contract against the drafter and in favor of the insured. See, e.g., Hallowell v. State Farm Mut. Auto. Ins. Co, 443 A.2d 925 (Del. 1982). Even in the insurance contract context, however, the more permissible rules of construction are not applied unless there is some ambiguity in the policy language. Here, as set forth above, the Court finds the contract language clear and unambiguous. I can find no basis for treating this contract as an unconscionable contract of adhesion.
II. Violation of Prohibited Trade Practices Act
Plaintiffs allege Delaware Signal violated 6 Del. C. § 2513 in that it "misrepresented, concealed, suppressed and/or omitted relevant material facts in regards to how the fire alarm system would be installed and monitored, and in the capabilities of the fire alarm system to meet the needs, demands and expectations of Plaintiff Cedar Shores." Delaware Signal argues the limitation of liability clause/liquidated damages clause forecloses recovery under a consumer fraud theory. Delaware Signal relies upon the holding in Rob-Win in making this argument. In that case, the court held the limitation of liability/liquidated damages clause limited recovery in the event of the defendant's ordinary negligence and in the event of the defendant's gross negligence. The court did so because the clause at issue in that case limited liability for all claims "whether in contract, tort or equity, including, but not limited to, any general, direct, special, incidental, exemplary, punitive and or consequential damages, irrespective of cause." Rob-Win, 2007 WL 3360036, at *6.
To date, no specific information has been put before the Court concerning the details of any misrepresentations, concealments, suppressions or omissions or the timing thereof. Because I read the limitation of liability/liquidation damages clause to apply to claims arising out of the parties' contractual obligations but not, necessarily, to those proceeding the creation of the parties' contractual obligations, I conclude the matter is not yet ripe for consideration.
III. Strict Liability
Finally, Plaintiffs argue Delaware Signal is strictly liable for any damages arising out of the lease of defective equipment. In support of their argument, Plaintiffs cite to the cases Martin v. Ryder Truck Rental, Inc., 33 A.2d 581, 587 (Del. 1975), and Eby v. Thompson, 2005 WL 1653988 (Del.Super. Apr. 20, 2005) . The Court concludes those cases do not require the Court to find lessors are subject to strict liability under Delaware law. Rather, the Court concludes that the adoption of Article 2A of the Uniform Commercial Code ("UCC") preempts the application of strict liability in the lease context. My reasoning follows a brief recitation of the case law.
Plaintiffs' reliance on Eby v. Thompson is misplaced. The facts in that case presented a choice of law question for the court. Any discussion of the benefits of one forum over another was pure dicta.
In 1976, prior to the passage of Article 2A of the UCC, the Supreme Court of Delaware held that strict liability principles apply to bailments and leases absent any legislative preemption. Martin v. Ryder Truck, 353 A.2d 581.
Subsequently, the Supreme Court had occasion to consider the interaction between strict liability principles and the UCC in the context of commercial sales. Cline v. Prowler Indus. of Maryland, Inc., 418 A.2d 968 (Del. 1980). In Cline, the Court held that Article 2 of the UCC preempts a common law claim premised on strict liability. In reaching this conclusion, the Court traced the history of both the UCC and the common law claim of strict liability. The Court observed that, while other state courts have held that the adoption of the UCC (and its implied warranty provisions) does not preempt the application of the strict liability doctrine, those courts have so held because those states have made and preserved a distinction between the contractual nature of a UCC claim and the tort nature of a strict liability claim. The Court distinguished Delaware because Delaware law has melded the two claims through its adoption of the UCC. Title 6, Section 2-318, for example, extends the benefit of implied warranties to " any natural person who may reasonably be expected to use, consume or be affected by the goods" (emphasis added) and includes personal injuries among contemplated consequential damages. Moreover, the Court noted that Delaware has retained the defenses of disclaimer, notice, and the contract of statute of limitation in its adoption of the UCC. Accordingly, the Cline Court concluded that the Legislature sought to distinguish Delaware UCC law as it relates to contracts of sale from the developing doctrine of strict liability in other states. Cline, 418 A.2d at 979.
This Court holds that the Legislature's adoption of Article 2A of the UCC in 1992 served to preempt the doctrine of strict liability as it pertains to leases. My reasoning tracks that of the Cline analysis. Specifically, the policy reasons for preempting strict liability in sales cases are also present with respect to cases involving leases. The following provisions, which were cited by the Cline Court, are set forth in both Article 2 and Article 2A of Delaware's version of the UCC: (1) privity of contract between the parties is not required (6 Del. C. § 2-318; 6 Del. C. § 2A-216); (2) personal injury damages are included as consequential damages (6 Del. C. § 2-318; 6 Del. C. § 2A-216); (3) the contracting parties are permitted to disclaim warranties (6 Del. C. § 2-316; 6 Del. C. § 2A-214); (4) the effect of acceptance and notice of breach requirements thereafter are spelled out (6 Del. C. § 2-607; 6 Del. C. § 2A-516); and (5) a statute of limitations is provided (6 Del. C. § 2-725; 6 Del. C. § 2A-506). Any policy reason for treating the lessor/lessee relationship differently from the buyer/seller relationship is trivial in the face of the similarities between the Articles. Finally, the Official Comment to the Uniform Commercial Code provides some guidance:
The Article on Sales provided a useful point of reference for codifying the law of leases. Many of the provisions of that Article were carried over, changed to reflect difference in style, leasing terminology or leasing practices. Thus, the official comments to those sections of Article 2 whose provisions were carried over are incorporated by reference in Article 2A, as well; further, any case law interpreting those provisions should be viewed as persuasive but not binding on a court when deciding a similar issue with respect to leases.
Uniform Commercial Code § 2A-101 cmt., p. 662 (2004) (emphasis added). Accordingly, Plaintiffs' final defense to Delaware Signal's Motion for Summary Judgment fails as well.
Conclusion
For the reasons set forth above, Defendant's Motion for Summary Judgment is granted, with the exception of the prohibited practice claim. IT IS SO ORDERED.