5D07-754 Vesta Construction v. Lotspeich

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State: Florida

Court: Florida Fifth District Court

Docket No: 5D07-754

Case Date: 02/18/2008

Preview:IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FIFTH DISTRICT JANUARY TERM 2008

VESTA CONSTRUCTION AND DESIGN, L.L.C., Appellant, v. LOTSPEICH & ASSOCIATES, INC. AND MICHAEL HOWE, Appellees. _______________________________________/ Opinion filed February 22, 2008 Appeal from the Circuit Court for Orange County, Renee A. Roche, Judge. Benjamin C. Iseman and Douglas C. Spears of Stump, Callahan, Dietrich & Spears, P.A., Orlando, for Appellant. Rebecca C. Kibbe and Anthony P. Strasius of Wilson, Elser, Moskowitz, Edelman, Dicker LLP, Miami, for Appellee. CASE NO. 5D07-754

LAWSON, J. Vesta Construction and Design, L.L.C., ("Vesta"), appeals the dismissal of its negligent misrepresentation claim against Michael Howe, an employee of Lotspeich & Associates, Inc., ("Lotspeich"), based upon Howe's alleged negligence in supplying information to Vesta while performing a contract between Vesta and Lotspeich. The trial court found that Vesta's tort claim against Howe was barred by the economic loss

doctrine. Vesta argues: (1) that the economic loss doctrine does not apply because it had no contractual privity with Howe, only with his employer, Lotspeich; and (2) that claims for negligent misrepresentation are excepted from the economic loss rule altogether. We agree with the trial court that the economic loss rule bars Vesta's claim against Howe, and affirm. Facts In May 2002, Vesta contracted to buy a fifty-five acre parcel of land in Titusville, Florida, which Vesta intended to develop as a residential subdivision. The contract provided a due diligence period, allowing Vesta time to explore the feasibility of developing the land. In August, Vesta made an offer for thirty additional acres of land, contiguous to the first fifty-five acres, for wetlands mitigation and restoration in connection with its pla nned project. As part of its due diligence, Vesta needed an environmental assessment to determine what portion of the land was developable, what portion consisted of wetlands, and how much land would have to be set aside for wetlands mitigation. contracted with Lotspeich to perform the environmental assessment. Vesta

The contract

required Lotspeich to provide its services in "a thorough, competent and professional manner," and further required Lotspeich's work to be "conducted in a manner consistent with the level of care and skill ordinarily exercised by members of the environmental consulting profession in the same locale and acting under similar circumstances and conditions." Howe is an ecologist who was employed by Lotspeich at the time. He was assigned as the employee primarily responsible for Lotspeich's performance of the Vesta contract.

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Howe's preliminary assessment indicated that forty-two of the fifty-five acres were wetlands. Additionally, Howe indicated that $75,000.00 per acre would have to be spent for wetlands mitigation in order to develop the land. Relying on this information, Vesta cancelled its contract to purchase the fifty-five acre parcel, and revoked its offer for the additional thirty acres. In early 2004, Vesta's president e l arned that the Titusville property had been developed by another buyer for single family residences. Curious, Vesta then obtained a copy of the environmental assessment done by Canaveral Engineering Group, ("Canaveral"), for the company that eventually developed the land. Canaveral's

assessment included all of the land Lotspeich had assessed, plus some additional acreage.1 Canaveral's study reported only twenty-two acres as wetlands and found seventy-five acres to be developable. Accordingly, the second developer proceeded with its project. Vesta then hired another firm to re-inspect the land originally inspected by Lotspeich. This firm concluded that forty-six of the fifty-five acres Vesta previously

planned to develop were developable; that three acres were marginal wetlands; and that fourteen acres were wetlands. Based upon these later surveys, Vesta concluded that Howe and Lotspeich had negligently assessed the land in 2002. In 2006, Vesta sued Lotspeich and Howe, alleging that it was damaged when it chose to forego its planned development based upon Howe's report, and seeking "lost profits associated with the development of the property." Count I alleged a cause of

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The total parcel of land owned by this developer was close to one -hundred

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action against Lotspeich for professional negligence. Count II stated a cause of action for breach of contract against Lotspeich. In count III, Vesta sued Howe personally for his alleged negligence. Howe moved to dismiss count III of the complaint, arguing that the tort claim was barred by the economic loss rule. The lower court agreed, and dismissed the claim against Howe with prejudice. Vesta appealed, and argues that: (1) the economic loss rule does not apply to Howe because he was not a party to the contract between Vesta and Lotspeich, and employees can generally be sued personally for their own negligent actions taken during the scope and course of their duties as an employee; and (2) an exception to the economic loss rule for "negligent misrepresentations" should apply to the cause of action alleged. We will address each argument, in turn, after discussing the economic loss rule, in general. Because the sufficiency of the complaint is a

question of law, our standard of review is de novo. Sobi v. Fairfield Resorts, Inc., 846 So. 2d 1204, 1206-07 (Fla. 5th DCA 2003). The Economic Loss Rule "The economic loss rule is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses." Indemnity Ins. Co. of North Am. v. Am. Aviation, Inc., 891 So. 2d 532, 536 n. 1 (Fla. 2004) (also explaining that "[e]conomic losses are, simply put, disappointed economic expectations"). As explained in American Aviation, Florida

courts have applied the economic loss rule in two different contexts. "The first is when the parties are in contractual privity and one party seeks to recover damages in tort for matters arising from the contract." Id. at 536.

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With respect to this context (which the Florida Supreme Court has labeled the "contractual privity economic loss rule"), the rule was developed "to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing an action for economic loss in tort." Id. "Underlying this rule is the assumption that the parties to a contract have allocated the economic risks of nonperformance through the bargaining process." Id. As our supreme court further explained: A party to a contract who attempts to circumvent the contractual agreement by making a claim for economic loss in tort is, in effect, seeking to obtain a better bargain than originally made. Thus, when the parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement. Accordingly, courts have held that a tort action is barred where a defendant has not committed a breach of duty apart from a breach of contract. Id. at 536-537. The second context for application of the economic loss rule arises "when there is a defect in a product that causes damage to the product but causes no personal injury or damage to other property." Id. at 536. "In contrast to the contractual privity economic loss rule, which developed to protect the integrity of the contract, the products liability economic loss rule developed to protect manufacturers from liability for economic damages caused by a defective product beyond those damages provided for by warranty law." Id. at 537-38. In summary, only those in privity with a manufacturer were originally allowed to sue the manufacturer for damages proximately caused by its defective product. Courts later expanded manufacturers' potential liability by

recognizing a cause of action in negligence for those who suffered personal injury or

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property damage proximately caused by a defective product, even if not in contractual privity with the manufacturer. See id. at 538-41; see also, Monroe v. Sarasota County School Bd., 746 So. 2d 530, 534-37 (Fla. 2d DCA 1999). The products liability

economic loss rule draws a line here, however, and does not generally allow a third party (not in privity with the tortfeasor) to recover against the manufacturer of a product when the product causes only economic losses. Am. Aviation, 891 So. 2d at 538-41 . Because of the differing history, rationales and purposes of these separately developed doctrines, confusion often arises when one attempts to apply cases addressing the products liability economic loss rule to contractual privity cases, and vice versa. Here, of course, we are dealing with a contractual privity case. The Contractual Privity Economic Loss Rule As Applied To Tort Claims Against Employees Of The Contracting Party A corporate officer or employee is not liable for the torts of the company simply because of the person's position with the company. E.g., Orlovsky v. Solid Surf, Inc., 405 So. 2d 1363, 1364 (Fla. 4th DCA 1981). However, "officers or agents of

corporations may be individually liable in tort if they commit or participate in a tort, even if their acts are within the course and scope of their employment." White v. Wal-Mart Stores, Inc., 918 So. 2d 357, 358 (Fla. 1st DCA 2005); see also, Fl. Specialty, Inc. v. H 2 Ology, Inc. , 742 So. 2d 523, 527 (Fla. 1st DCA 1999) ("agents of a corporation are personally liable where they have committed a tort even if such acts are performed within the scope of their employment"). All that needs to be alleged is that the agent or officer personally participated in the tort, even if the complained of action was because of and entirely within the scope of his or her employment. Id . at 527-28.

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No Florida court has expressly addressed the interplay between these general tort principles and the economic loss rule. Vesta very logically argues that: (1) Under general tort principles, Howe can be held individually liable for his own negligent conduct for actions undertaken on behalf of Lotspeich; and (2) Vesta had no contractual relationship with Howe, so that the economic loss rule cannot be applied to bar a negligence action against Howe personally, for his own misconduct. In support of this argument, Vesta cites McLeod v. Barber, 764 So. 2d 790, 793 (Fla. 5th DCA 2000), which very generally states that "the economic loss doctrine does not apply to tort claims where there is no contractual relationship between the parties." Although this is a valid general observation relevant to the contractual privity economic loss rule, McLeod did not involve an attempt to sue an employee for negligent performance of a contract where the same cause of action would be barred (by the economic loss rule) against the employer who had contracted with the plaintiff. For two reasons, we hold that when suit is barred against a corporation by the contractual privity economic loss rule, the contracting party cannot bypass the rule by suing corporate employees for their negligent performance of the contract. First, the policy reasons supporting the rule dictate this result. As previously explained, the whole reason for the economic loss rule in this context is "to protect the integrity of the contract." Am. Aviation, 891 So. 2d at 538. As Justice Cantero further explained in his concurring opinion in American Aviation: "When parties can protect their economic interests through contract, it would only undermine contract and warranty law and produce economic inefficiency to allow purely economic recovery in tort." Id. at 544-45 (Cantero, J., concurring). Given that a corporation can only act

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through its employees, see, e.g. Romero v. State , 790 So. 2d 468, 471 (Fla. 5th DCA 2001); Ratley v. Batchelor, 599 So. 2d 1298, 1300 (Fla. 1st DCA 1992), it would completely undermine the contractual privity economic loss rule to allow any party which contracts with a corporation to avoid the rule by simply bringing its tort claim directly against the corporate officers or employees tasked with performing the contract on behalf of the corporation. Second, the rule that we have expressly stated here is unequivocally implied in other controlling cases. The clearest case is Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999). In Moransais, our supreme court considered the following question certified by the Second District to be of great importance: WHEN THE ALLEGED DAMAGES ARE PURELY ECONOMIC, CAN THE PURCHASER OF A RESIDENCE, WHO CONTRACTS WITH AN ENGINEERING CORPORATION FOR A PRE-PURCHASE INSPECTION, MAINTAIN A PROFESSIONAL NEGLIGENCE ACTION AGAINST THE LICENSED ENGINEER WHO PERFORMED THE INSPECTION AS AN EMPLOYEE OF THE ENGINEERING CORPORATION? Id. at 974. In answering this question, the court held "that the economic loss rule does not bar a cause of action against a professional for his or her negligence even though the damages are purely economic in na ture and the aggrieved party has entered into a contract with the professional's employer." Id. at 983-84. The Moransais "exception" to the economic loss rule is limited to suits against individual "professionals," which our supreme court narrowly defined as a person engaged in a "'vocation requiring at a

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minimum a four -year college degree before licensing is possible in Florida.'"2 Id. at 977 (quoting Garden v. Frier , 602 So. 2d 1273, 1275 (Fla. 1992)); see also, Am. Aviation, 891 So. 2d at 537 (citing Moransais for the proposition that in "cases . . . alleging neglect in providing professional services [it has been] determined that public policy dictates that liability not be limited to the terms of the contract"); Crowell v. Morgan Stanley, Dean Witter Serv., Co., Inc. , 87 F. Supp. 2d 1287, 1292 (S.D. Fla. 2000) (noting that the Moransais economic loss rule exception is limited to professional negligence claims). Of course, there would have been no need for the court to have carved out an economic loss rule exception for suits against "a professional for his or her negligence ... [when] the aggrieved party has entered into a contract with the professional's employer," 744 So. 2d at 983-84, if the theory advanced by Vesta had any validity. Under Vesta's theory, the plaintiff in Moransais could have sued any

employee of the engineering firm who helped perform the firm's contract, whether or not the employee was a "professional," based simply on a "lack of privity" with employees of the firm. Therefore, we reject Vesta's "lack of privity" theory, and reiterate that when an aggrieved party is barred by the contractual privity economic loss rule from suing a corporation in tort, it cannot avoid the rule by suing non-professional employees for their alleged negligence in performing the contract on behalf of the corporation.

In this case, Vesta did not attempt to state a cause of action against Howe for professional negligence. -9-

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The Contractual Privity Economic Loss Rule As Applied To Claims For Negligent Misrepresentation Citing American Aviation, Vesta argues that its negligent misrepresentation claim against Howe should not have been dismissed because "negligent misrepresentation" is a recognized "exception" to the economic loss rule. Although American Aviation does, in summary fashion, list negligent misrepresentation as an economic loss rule exception, 3 it is clear from a thorough review of Florida case law that not all negligent misrepresentation claims are excepted from the contractual privity economic loss rule. Rather, a distinction is drawn between misrepresentations that are directly related to the breaching party's performance of the contract and those which are independent of the contract (for example, a misrepresentation which induces the party to enter the contract). The economic loss rule exception applies only to the latter category of cases

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