Opinion
1:00cv177-C
January 23, 2001
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the court upon defendants' Motion to Dismiss and plaintiffs' Motion to Amend Complaint. Having carefully considered those motions, reviewed the pleadings, and conducted a hearing at the request of the parties, the undersigned enters the following findings, conclusions, and recommendation.
FINDINGS AND CONCLUSIONS
I. Background
The following factual statement is set forth to aid the decision-making process. It is not intended to bind the parties or the court as "findings of fact" at this early stage of litigation.
In November 1995, plaintiff RCDI Construction Management, Inc., ("RCDICM") signed a contract document with Dr. Anil J. Patel ("Patel") and a corporation owned by him, Rocky Ridge Hospitality Corporation ("Rocky Ridge"), for construction of a Wingate Inn hotel in Buncombe County, North Carolina. Construction took place in 1996 and 1997 and was performed by RCDI Construction, Inc., ("RCDIC"), a wholly owned subsidiary of RCDICM.
At about the time the hotel was to be completed, serious problems were discovered with respect to the construction: water flooded the building, which, in turn, caused an infestation of toxic mold. Plaintiffs contend that as soon as it was determined that the flood had caused the mold contamination, they undertook to remedy the problem and complete the building, but were prevented from doing so by the actions of the defendants. That intervention of defendants, plaintiffs contend, ultimately resulted in demolition of the building and substantial monetary loss to plaintiffs.
Defendants — an architectural firm and its principal architect — were hired by Patel and Rocky Ridge to evaluate the damage and suggest a course of action. Defendants were not involved in the design or supervision of the original building project. Michael Thomas was the design and project architect. A separate architectural firm, ISOM Associates, PA, was retained as inspecting architect to inspect the construction work of RCDIC and/or RCDICM. Defendants were not parties to the contract between Patel/Rocky Ridge and RCDIC and/or RCDICM.
Plaintiffs assert claims for tortious interference with contract, unfair and deceptive trade practices, and negligence. All claims stem from the professional advice defendants provided Patel/Rocky Ridge. It is plaintiffs' contention that defendants, who were not toxicologists, improperly advised Patel/Rocky Ridge to fire RCDIC and/or RCDICM and gut the multimillion dollar structure.
Plaintiffs contend that because such advice caused the termination of the underlying contract to their detriment, a tortious interference with contract occurred. Plaintiffs further contend that because such advice was given by defendants in order to secure a lucrative fee as the new design and project architects, defendants' conduct amounted to an unfair and deceptive trade practice. Defendants have moved to dismiss, arguing that plaintiffs have failed to state viable claims.
An earlier action was filed in state court, which involved the original contracting parties and subcontractors. That action was resolved by a settlement agreement. As part of the resolution of that litigation, plaintiffs allege, Patel and Rocky Ridge received the sum of $6,700,000, and RCDICM was unable to recover the balance due on its contract of about $421,000.
This action is before this court under 28, United States Code, Section 1332, and this court has jurisdiction over these claims, inasmuch at the amount in controversy well exceeds the statutory threshold and complete diversity exists between these parties.
II. Standard
Defendants have moved for dismissal pursuant to Rule 12(b), Federal Rules of Civil Procedure, contending that plaintiffs have failed to state a cognizable claim. Rule 12(b) authorizes dismissal based upon a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 1832(1989); Hishon v. King Spalding, 467 U.S. 69, 73(1984);Conley v. Gibson, 355 U.S. 41(1957). As the Court discussed in Neitzke:
This procedure [for dismissal], operating on the assumption that the factual allegations in the complaint are true, streamlines litigation by dispensing with needless discovery and fact finding. Nothing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable. On the contrary, if as a matter of law "it is clear that no relief could be granted under any set of facts . . . a claim must be dismissed, without regard to whether it is based on outlandish legal theory. . . . What Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations."Id., 109 S.Ct., at 1832 (citation omitted). For the limited purpose of making a recommendation as to disposition of defendants' motion, the undersigned has accepted as true the facts alleged by plaintiffs in the complaint and viewed them in a light most favorable to plaintiffs.
III. Discussion
Plaintiffs assert three causes of action: (1) interference with contract or expectancy; (2) unfair and deceptive trade practices; and (3) negligence. First, defendants argue that all three claims are subject to dismissal as previously released or settled in the earlier litigation. Second, defendants argue that the tortious interference claims must be dismissed as a matter of law, inasmuch as plaintiffs cannot allege and prove an essential element of those claims, which is a valid contract between Patel/Rocky Ridge and RCDIC/RCDICM. Finally, defendants argue that the claim of unfair and deceptive trade practices should be dismissed, inasmuch as the learned-profession exception applies to architects. Each claim and ground for dismissal will be addressed seriatim.
A. Release
Defendants contend that all three claims asserted by plaintiffs should be dismissed as previously released when the earlier litigation between plaintiffs, Patel, Rocky Ridge, and others, was settled in state court. Defendants herein were not parties to that action. From the outset, the undersigned, finds that "release" is an affirmative defense under Rule 8(b), which is a proper subject of a Rule 12(b)(6) motion to dismiss "only if it clearly appears on the face of the complaint." Richmond, Fredericksburg Potomac R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993).
The arguments of the respective parties make it clear that resolution of the issue of release does not depend upon information that is found in the complaint, but, instead, requires a determination of the intent of the settling parties as to whether defendants herein were intended beneficiaries. In fact, the release is not attached to the complaint, but is annexed to defendants' answer. Even if proper to consider under Rule 12, the only language of release by plaintiffs does not, on its face, inure to defendants' benefit:
RCDI [RCDIC and RCDICM] . . . hereby release acquit and discharge Patel, Rocky Ridge and Nila Patel and their heirs, executors, administrators, successors and assigns, and any officers, directors and shareholders of Rocky Ridge, from any liability that they have or may have for any sums that may be owing for the construction of the Hotel, and for such other claims as RCDI . . . have or may have against them related to the construction of the Hotel or related in any way to the Hotel project.
Determination of the intent of the parties is, necessarily, fact specific and will require discovery. The undersigned, therefore, will recommend that dismissal on the basis of release be denied.
B. Tortious Interference With Contract or Expectancy
The essential elements of plaintiffs' common-law claim for tortious interference with contract are, as follows:
(1) a valid contract between plaintiff and a third person that confers upon plaintiff a contractual right against a third person; (2) the defendant knows of the contract; (3) the defendant intentionally induces the third person not to perform the contract; (4) the defendant acts without justification; and (5) the defendant's conduct causes actual pecuniary harm to plaintiff.Stephenson v. Warren, 136 N.C. App. 768, 774 (2000). As to the claim of tortious interference with an expectancy, the only element that changes is the first. That changed element would require plaintiffs to allege that, but for defendants' alleged conduct, they are reasonably certain that a contract would have been entered.
It appears to the court that North Carolina may not recognize a claim for tortious interference with prospective contracts. In EEE-ZZZ Lay Drain Co. v. N.C. Dept. of Human Resources, 108 N.C. App. 24(1992),overruled on other grounds, 347 N.C. 97(1997), the North Carolina Court of Appeals held as follows:
Plaintiff was unable to point to any specific instance when these acts [i.e., interference with prospective contractual relations] occurred, and this Court is unable to find any evidence of such in the record. We find no basis for believing that such a cause of action even exists in North Carolina.Id., at 31. Under Robinson, Bradshaw, Hinson, PA v. Smith, 129 N.C. App. 305, 318-19(1998), a different conclusion is reached.
In moving to dismiss, defendants allege that a valid contract did not exist between Patel/Rocky Ridge and RCDIC/RCDICM under North Carolina law. Without doubt, plaintiffs have alleged that a contract existed, which satisfied their pleading requirement. At this point, it would appear to be premature to decide whether, as a matter of law and fact, a contract did exist between plaintiffs and the nonparties. The question that is left under Rule 12(b)(6) is whether, as a matter of law, plaintiffs have stated a cognizable claim. Assuming that a voidable contract existed between plaintiffs and the nonparties, it appears that a contract right that would have survived, had Patel/Rocky Ridge actually voided the contract, would be plaintiffs' right to offset.
RCDICM, which contracted with Patel/Rocky Ridge, has never been licensed in North Carolina. RCDIC was created after formation of that contract and received a North Carolina license prior to construction commencing. RCDICM purportedly assigned such contract to RCDIC, although the manner in which such assignment was made would have violated a term of the contract.
North Carolina law has yet to address this specific scenario. Without doubt, an unlicenced contractor cannot obtain an affirmative judgment against the owner of the property, Roberts v. Heafner, 51 N.C. App. 646(1981); but "such a contract is not void," Brady v. Fulghum, 309 N.C. 580, 585(1983). In the context of a voidable contract, where an owner asserts claims against an unlicenced contractor, the contractor can assert counterclaims for setoff. Roberts, supra, at 651. The owner may also seek to enforce a contract with an unlicenced contractor. Brady, supra, at 585.
The precise issue is whether a valid contract can be alleged where the underlying contract was voidable. The only clear answer in North Carolina is found in Haskins v. Royster, 70 N.C. 601, 1874 WL 2475(1874), in which the North Carolina Supreme Court held, as follows:
This brings me to the only other point. It is said that even if the contract is such as the laborers may violate with impunity, yet the defendant is a malicious intermeddler, and does not stand upon the same footing with the laborers. I admit that it is of much importance to the best interests of society that valid contracts of every kind, and especially those between employers and laborers, should be observed in good faith; and that officious intermeddlers should find no favor. But it is a rule of common sense, that what one may lawfully do, another may advise him to do. Yet I admit that there is respectable authority for saying, that where there is a voidable contract which one of the parties may violate with impunity, if a third person induces him to violate it, he may be liable. The instance put is, where an infant is a party to a contract which is voidable by him, and a third person induces him to violate it, he is liable. And why should he not be? for the contract may be for the advantage of the infant; and both the infant and the public interested in its observance. But Mr. Smith, in his work, entitled master and servant, p. 7, says: "But it has been held that a contract by an infant binding himself to serve during a certain time for wages, but enabling the master to stop the work whenever he chose, and retain the wages during the stoppage, is wholly void as not being beneficial to the infant." For which he cites Reg. v. Lord, 12 Q. B. 757. Observe the difference between void and voidable contracts. Under the new regime, much of the labor of the country is performed under contract. This is the first case which has been before us in which the incidents of the relation of employer and laborer have been under discussion, and will probably be looked to as a precedent. I think it of great importance that employers should make only just and reasonable contracts; that laborers should be faithful on their part; and that third persons should not intermeddle. If either of these classes violate their plain duties, they will find no favor. What I say for myself, I think I may say for this Court, and for all Courts?? Only to prevent a contrary influence is the aim of much that I have said.
1874 WL, at 13 (emphasis added). As a matter of North Carolina law, claims for tortious interference with contract and expectancy (to the extent such a claim exists) may be maintained even where the underlying contract was merely voidable. The undersigned, therefore, will recommend that defendants' Motion to Dismiss based on tortious interference be denied.
C. Unfair and Deceptive Trade Practices
Plaintiffs contend that defendants are practicing architects who took actions outside the scope of the practice of architecture, and well outside the scope of their expertise, through provision of incorrect advice about remediation of the mold infestation. Further, plaintiffs contend that defendants were motivated to make such recommendation in order to secure an architectural project from Patel and Rocky Ridge and that, in taking such course of action, they left plaintiffs unable to cure the mold problem, thereby requiring the eventual demolition of the building at plaintiffs' expense.
The parties do not dispute that North Carolina law provides "learned-profession" exceptions to claims of unfair and deceptive trade practices. N.C. Gen. Stat. § 75-1.1(b). So far, North Carolina courts have found only doctors and lawyers entitled to the exception. The test for determining whether the exception applies is, as follows:
First, the person or entity performing the alleged act must be a member of a learned profession. Second, the conduct in question must be a rendering of professional services.Reid v. Avers, ___ N.C. App. ___, 531 S.E.2d 231, 235(2000). The appellate court further held that this exception would not apply when an attorney or a law firm is engaged in the entrepreneurial aspects of legal practice that are geared more towards their own interests, as opposed to the interests of their clients. Id., at 236. In Porter Muirhead Cornia Howard v. State By and Through Wyoming Bd. of Certified Public Accountants, 844 P.2d 479 (Wyo. 1992), the Wyoming Supreme Court held, as follows:
Texts and scholarly writings dating back to antiquity describe the learned professions as, initially, law and then medicine. In the more complicated present societal structure in which we live, it is clear that a learned profession should also include the way we design and build, architects and engineers, and the way we exist, operate and do business, accountancy.Id., at 482, n. 5. North Carolina law leaves little room to argue that architects are not "professionals." Architects are regulated by Chapter 83A of the North Carolina General Statutes, and the practice of architecture without a licence is prohibited by Chapter 83A-12. Licensure requirements include professional education, three years' practical training, and completion of an examination specified by the North Carolina Board of Architecture. N.C.G.S. § 83A-7(a)(1). There is also a requirement of "good moral character," N.C.G.S. § 83A-7(a), which leads to "fiduciary duties of an architect to his client," N.C.G.S. § 83A-1(5). The North Carolina Board of Architecture has plenary disciplinary powers, N.C.G.S. § 83A-15; and an aggrieved party may file with the Board a charge of unprofessional conduct, negligence, dishonest practice, or other misconduct, N.C.G.S. § 83A-14. The North Carolina Court of Appeals has held that "architecture is undoubtedly a profession." Blue Cross and Blue Shield of North Carolina v. Odell Associates. Inc., 61 N.C. App. 350, 361(1983).
As a practical matter, the punitive aspects of North Carolina's Unfair and Deceptive Practices Act — treble damages — clearly were intended to protect consumers from unscrupulous merchants who, even if caught in a shady business deal, only risked payment of actual damages. With doctors and lawyers, treble damages were not needed, inasmuch as in addition to malpractice and breach-of-fiduciary duty claims which are available, avenues exist to have the professionals' state-issued licenses revoked. The same would appear to apply to architects, inasmuch as a fiduciary duty is imposed between architect and client, and procedures are in place for leveling professional grievances. Plaintiffs' argument that such a standard for "learned professions" would also encompass cosmetologists and other licensed tradesmen goes too far. While certainly licensed, such vocations do not have the extensive educational requirements that are a threshold into the medical, legal, and architectural professions. Finally, the second step of the test requires that the conduct in question must be a rendering of professional services. Reid, supra. While plaintiffs take issue with the motives and qualifications of defendants in the advice rendered, it is clear under Chapter 83A-1(7) that an architect may
perform professional services in connection with the design construction, enlargement or alteration of buildings, including consultations, investigations, evaluations, preliminary studies, the preparation of plans, specifications and contract documents, administration of construction contracts and related services or combination of services in connection with the design and construction of buildings, regardless of whether these services are performed in person or as the directing head of an office or organization.
Defendants' alleged advice to their clients to fire plaintiffs and gut the building is part and parcel of the practice of architecture. Whether such advice tortiously interfered with plaintiffs' alleged contract with the owners is a separate issue. For the reasons set out above, the undersigned will recommend dismissal of plaintiffs' claim for unfair and deceptive trade practices.
D. Negligence
Defendants have also moved to dismiss plaintiffs' negligence claims based upon a lack of privity between plaintiffs and defendants. Privity is not required for a contractor to maintain a negligence claim against an architect. Schoffner Industries, Inc. v. W.B. Lloyd Construction Co., 42 N.C. App. 259(1979). In Schoffner, the North Carolina Court of Appeals held, as follows:
A contractor hired by the client to construct a building, although not in privity with the architect, may recover from the architect any extra costs resulting from the architect's negligence.
* * *
The power of the architect to stop the work alone is tantamount to a power of economic life and death over the contractor.Id., at 265-66. There appears to be no exception under North Carolina case law for an architect that is hired near the end of construction or is hired as a consultant. Plaintiffs have stated a claim for negligence which survives Rule 12(b)(6) review.
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that
(1) defendants' Motion to Dismiss be ALLOWED as to plaintiffs' claim for unfair and deceptive trade practices;
(2) defendants' Motion to Dismiss be otherwise DENIED; and
(3) plaintiffs' Motion to Amend be DENIED, inasmuch as amendment would be futile, in light of the learned-profession exception.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Arn, 474 U.S. 140(1985), reh'g denied, 474 U.S. 1111(1986); United States v. Schronce, 727 F.2d 91 (4th Cir.), cert. denied, 467 U.S. 1208(1984).
This Memorandum and Recommendation is entered in response to defendants' Motion to Dismiss (#6) and plaintiffs' Motion to Amend Complaint (#13).