Anchorage, a Municipal Corporation v. Integrated Concepts and Research Corporation et al
Filing
188
ORDER: re PND's Motion for Summary Judgment - Economic Loss Doctrine 91 and CH2M Hill's Motion for Summary Judgment 94 . Signed by Judge Sharon L. Gleason on 03/04/2015. (AEM, CHAMBERS STAFF)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
ANCHORAGE, a Municipal
Corporation,
Plaintiff,
vs.
INTEGRATED CONCEPTS AND
RESEARCH CORPORATION; PND
ENGINEERS, INC.; CH2M HILL
ALASKA, INC.; GEOENGINEERS,
INC.,
Case No. 3:13-cv-00063-SLG
Defendants,
vs.
CH2M HILL ALASKA, INC.,
Third-Party Plaintiff,
vs.
TERRACON CONSULTING, INC.
Third-Party Defendant.
ORDER
There are currently several motions pending before the Court.
This Order
addresses (1) PND Engineers’ Motion for Summary Judgment – Economic Loss Doctrine
at Docket 91 and (2) CH2M Hill’s Motion for Summary Judgment at Docket 94. The
motions have been fully briefed and oral argument was held on October 28, 2014.
After both PND’s and CH2M Hill’s motions were submitted, the Court granted the
Municipality’s (MOA) motion to amend its complaint. MOA’s First Amended Complaint
adds a negligent misrepresentation claim against PND, and negligence and negligent
misrepresentation claims against CH2M Hill. 1 It also adds GeoEngineers, Inc. as a
defendant. 2 The First Amended Complaint expands on the nature of the damages
sought, including with respect to MOA’s allegations of property damage and costs to
prevent risks to persons and/or property. 3 For example, MOA’s professional negligence
claim against PND in MOA’s initial complaint alleged that “Plaintiff’s real property has
been damaged and rendered unusable . . . .”4 The same claim in MOA’s First Amended
Complaint alleges that “Plaintiff’s property has been damaged, Plaintiff’s property has
been lost, and costs have been occurred and will continue to be incurred to prevent risks
to persons and/or property . . . .” 5
STANDARD OF REVIEW
Federal Rule of Civil Procedure 56(a) directs a court to “grant summary judgment
if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” “The moving party initially bears the
burden of proving the absence of a genuine issue of material fact.” 6 In cases where the
non-moving party bears the burden of proof at trial, the moving party “need only prove
1
Docket 144 (Order) at 3. The Court also granted CH2M Hill’s motion to file a Third Party
Complaint against Terracon Consulting, Inc.
2
Docket 145 (FAC).
3
See, e.g., Docket 145 (FAC) at ¶¶ 229, 234, 243, 248, 253, & 262.
4
Docket 2-2 (Complaint) at ¶ 225.
5
Docket 145 (FAC) at ¶ 229.
6
In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010) (citing Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986)).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 2 of 14
that there is an absence of evidence to support the non-moving party’s case.” 7 If the
moving party meets this burden, then the non-moving party must present specific
evidence demonstrating the existence of a genuine issue for trial, i.e., “evidence from
which a jury could reasonably render a verdict in the non-moving party’s favor.” 8 The
non-moving party may not rely on mere allegations or denials. 9 When considering a
motion for summary judgment, a court must accept as true all evidence presented by the
non-moving party and draw “all justifiable inferences” in the non-moving party’s favor. 10
If the evidence provided by the non-moving party is “merely colorable” or “not significantly
probative,” summary judgment is appropriate. 11
DISCUSSION
I.
PND’s Motion
PND asserts that MOA’s initial complaint sought solely economic damages in tort
from PND, and maintains that MOA cannot pursue such claims against PND and its
subcontractor, CH2M Hill, because they are precluded by Alaska’s economic loss
doctrine. 12 This doctrine generally bars tort recovery for purely economic losses. PND
asserts that its summary judgment motion “concerns no issue of fact. Rather, it concerns
7
Id. (citing Celotex, 477 U.S. at 325).
8
Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)).
9
Anderson, 477 U.S. at 248. The non-moving party may rely on any of the evidentiary materials
listed in Rule 56(c). Celotex, 477 U.S. at 324. This includes depositions, documents, affidavits,
stipulations, and discovery materials. See Fed. R. Civ. P. 56(c)(1).
10
Anderson, 477 U.S. at 255.
11
Id. at 249–50.
12
Docket 91 (PND Mot.) at 3.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 3 of 14
the legal issue of whether [MOA] can assert tort claims against PND for its alleged
economic loss.”13 PND maintains that Alaska applies a “nature of the damages test” to
distinguish contract claims from tort claims and Alaska’s economic loss doctrine “confines
claims for economic loss to the law of contracts.” 14 Since there was no contractual privity
between the MOA and PND (at least with respect to MOA’s claims that have been raised
in this case), PND maintains it is entitled to summary judgment.
In its Opposition, MOA explains that it has divided the damages it is seeking into
three categories. It asserts its “Category I Damages” are property damage, not economic
loss, and thus are recoverable in a tort action. At the very least, MOA argues that a
material factual dispute exists as to whether its Category I damages constitute property
damage as opposed to economic loss.
MOA acknowledges that its Category II and III damages are economic loss. But it
asserts that while the Alaska Supreme Court has not “squarely addressed the issue,”
according to MOA, Alaska law does, or at least should, permit the recovery in tort of
economic loss in the absence of contractual privity, and particularly when the loss results
from a design professional’s negligent acts. 15 MOA also asserts that economic loss is
recoverable under Alaska law on a claim for “regular” negligence when the plaintiff is
within a foreseeable class that the defendant knew or had reason to know is likely to
13
Docket 91 (PND Mot.) at 4.
14
Docket 91 (PND Mot.) at 5 (citing Lee Houston & Assocs., Ltd. v. Racine, 806 P.2d 848 (Alaska
1991)).
15
Docket 109 (MOA Opp’n to PND Mot.) at 21 (citing City of Dillingham v. CH2M Hill Northwest,
Inc., 873 P.2d 1271, 1278 n.12 (Alaska 1994)).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 4 of 14
suffer economic damages as a result of its conduct. 16 Finally, MOA asserts that economic
loss is recoverable in an action for negligent misrepresentation because that is an
economic tort, for which the appropriate remedy is damages for pecuniary loss. 17
Integrated Concepts and Research Corporation (ICRC) had asserted that PND’s
motion should be deemed moot or held in abeyance because of procedural issues that
were then pending. It also argues that “Alaska law does not support the sweeping relief
sought by PND based on a limited factual record.” 18 ICRC adds that PND did indeed
have a direct contractual relationship with MOA for several years, which it asserts is a
disputed material factual issue. 19 ICRC also summarizes its perspective on Alaska’s
economic loss doctrine, although it focuses its analysis on several cases in which there
was privity of contract between the litigants. Based on that analysis, ICRC asserts that
the focus under Alaska law is not on the “nature of damages,” as PND has maintained.
Rather, ICRC asserts the case law “shows a clear focus on the nature of the duty allegedly
breached by the defendant.” 20 ICRC asserts that “at this stage of the proceedings, there
appears little room for disputing that PND served as the professional responsible for the
16
Docket 109 (MOA Opp’n to PND Mot.) at 23-24 (citing Mattingly v. Sheldon Jackson College,
743 P.2d 356 (Alaska 1987)).
17
Docket 109 (MOA Opp’n to PND Mot.) at 24-25 (citing, inter alia, Nelson v. Progressive Corp.,
976 P.2d 859 (Alaska 1999)).
18
Docket 111 (ICRC Opp’n to PND Mot.) at 2.
19
Docket 111 (ICRC Opp’n to PND Mot.) at 2-3. In its Reply, PND states that MOA “did not sue
PND for the work performed on that contract . . . [and] if claims on the 2002 contract had been
asserted, they would sound in contract not tort.” Docket 127 (PND Reply) at 3 n.1.
20
Docket 111 (ICRC Opp’n to PND Mot.) at 7-8.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 5 of 14
OCSP [Open Cell Sheet Pile] design, which, under Alaska law, potentially opens the door
to recovering economic losses.” 21
In its Reply, PND responds that there is no reason to delay a ruling on its motion,
asserting that the “issues raised in PND’s motion – i.e., the proper legal characterization
of [MOA]’s claims – directly relate to the issues presented by [MOA’s then-pending]
motion to amend.”22 PND further maintains that none of the reasons argued by MOA and
ICRC for not applying the economic loss doctrine apply here. First, PND maintains that
the Category I damages are not property damages because the Backlands property that
was allegedly damaged was “created because of the work that PND did on the Project,”
and thus it is not “other property.” Second, PND asserts that the alleged risk to persons
or to the Project property is too speculative to warrant application of that exception to the
economic loss doctrine. Third, PND maintains that the Alaska Supreme Court has not,
and likely would not, allow professional negligence tort claims for economic loss against
professional service providers and particularly when there is no contractual privity.
Fourth, PND argues that MOA is incorrect as a matter of law when it asserts that the
economic loss doctrine only applies when the parties are in privity of contract. Fifth, PND
asserts that MOA’s interpretation of Alaska law regarding a foreseeable class of plaintiffs
is overbroad and inapplicable. And finally, PND asserts that MOA’s negligent
misrepresentation claim should be precluded because it is “an impermissible attempt to
21
Docket 111 (ICRC Opp’n to PND Mot.) at 5-8.
22
Docket 127 (PND Reply) at 3.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 6 of 14
plead around the economic loss doctrine,” because, in PND’s view, that claim is in
essence alleging a negligent breach of PND’s contractual obligations. 23
II.
CH2M Hill’s Motion
CH2M Hill’s motion for summary judgment is also based on the economic loss
doctrine. And, like PND, CH2M Hill observes that there was no privity of contract between
it and MOA. The parties’ briefing on this motion contains each party’s perspective on the
relevant Alaska case law, as well as CH2M Hill’s analysis of the policy reasons that
support reliance on the economic loss doctrine, and in particular the doctrine’s benefit in
construction projects with multiple parties.
MOA, for its part, devotes considerable
briefing to its argument that economic loss is recoverable in an action for professional
negligence when the parties are not in privity. CH2M Hill’s Reply responds to this legal
argument, and also thoroughly discusses its perspective as to why the Backlands is not
“other property.” 24
III.
The Motions are Denied Without Prejudice to Renew with Respect to the
New Claims Raised in MOA’s First Amended Complaint
The Court’s Order at Docket 144 granted MOA’s motion to file an amended
complaint adding new claims and a new party. Although there has been some briefing
related to the application of the motions to the Amended Complaint, which was pending
at the time the parties briefed the motions, the Court concludes that it would be premature
to rule with respect to those claims at this time. Accordingly, the Court denies without
23
Docket 127 (PND Reply).
24
See Docket 94 (CH2M Hill Mot.); Docket 118 (MOA Opp’n to CH2M Hill Mot.); Docket 114
(ICRC Opp’n to CH2M Hill Mot.); and Docket 131 (CH2M Hill Reply).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 7 of 14
prejudice to renew the motions with respect to the claims for negligent misrepresentation
against PND and CH2M Hill, and the claim for negligence against CH2M Hill.
IV.
The Backlands is Not “Other Property”
MOA asserts that its Category I damages are property damage to the Backlands
and therefore are not subject to the economic loss doctrine. 25 CH2M Hill maintains that
rather than constituting potentially recoverable damages to “other property,” “any damage
to the Backlands represents a diminution in the value of what MOA bargained for, not
property damage recoverable in tort.” 26 PND quotes from a Declaration of Todd C.
Cowles, a civil engineer employed by MOA, who avers that one of the “key goals” of the
Project was to “expand the Port facilities through the reclamation of tidal and subtidal
areas to create new property,” and the Project “create[d] approximately 53 acres of new
MOA property referred to as the Backlands.” 27 Mr. Cowles also stated
[t]he defective work primarily consists of the defective OCSP® system, and
the property damage consists of the Backlands’ loss of lateral support due
to the defective OCSP® system, costs that have been incurred and must
be incurred to stabilize the Backlands through an entirely new system to
prevent it from eroding and washing out into Cook Inlet, and the removal
and permanent loss of a portion of the Backlands that will necessarily result
from the implementation of that new system. 28
Based on Mr. Cowles’ Declaration, the Court agrees with CH2M Hill that the
“Backlands constituted the expanded acreage that was the object MOA bargained for”
25
Docket 109 (MOA Opp’n to PND Mot.) at 2; Docket 118 (MOA Opp’n to CH2M Hill Mot.) at 2.
26
Docket131 (CH2M Hill Reply) at 14.
27
Docket 127 (PND Reply) at 4-5 (quoting Docket 110 (Cowles Decl.) at ¶ 4.
28
Docket 110 (Cowles Decl.) at ¶ 11 (emphasis added); see also Docket 119 (Cowles Decl.) at ¶
11.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 8 of 14
such that any damage to the Backlands does not constitute damage to “other property”
that would fall outside of the economic loss doctrine on that basis. 29
MOA also argues that the economic loss doctrine does not preclude its recovery
of the Category I damages because that doctrine does not apply if a plaintiff can show
that the alleged malfeasance created a significant risk of personal injury or property
damage. MOA and ICRC cite to several Alaska Supreme Court cases in support of this
position. 30 Under this theory, even if the Backlands is not “other property,” MOA’s
damages could still be recoverable if MOA demonstrated that the new Backlands acreage
in its current form creates a significant risk of personal injury. On this topic, there is
presently very little in the record. MOA’s engineer Mr. Cowles simply asserts that “the
instability of the Backlands poses a risk to persons present on that property.” 31 He
provides no further explanation or support for that statement, nor does he give any
indication that the risk of personal injury is significant. MOA’s only other citation to the
record on this topic is to the CH2M Hill Suitability Study, but that document’s discussion
of the risk of personal injury is limited and insufficient to demonstrate that any such risk
is significant. 32 However, given the limited discovery that has been undertaken to date,
29
Docket 131 (CH2M Hill Reply) at 12. See also Oceanside at Pine Point Condo. Owners Ass’n
v. Peachtree Doors, Inc., 659 A.2d 267, 271 (Me. 1995).
30
See Dockets 109 and 118 (MOA Opp’ns) at 8-9 (citing Pratt & Whitney Canada, Inc. v.
Sheehan, 852 P.2d 1173 (Alaska 1993), Smith v. Tyonek Timber, Inc., 680 P.2d 1148 (Alaska
1984), Shooshanian v. Wagner, 672 P.2d 455 (Alaska 1983), Northern Power & Eng’g Corp. v.
Caterpillar Tractor Co., 623 P.2d 324 (Alaska 1983), Cloud v. Kit Mfg. Co., 563 P.2d 248 (Alaska
1977), Morrow v. New Moon Homes, Inc., 548 P.2d 279 (Alaska 1976)). See also Docket 111
(ICRC Opp’n) at 5.
31
Dockets 110 and 119 (Cowles Decls.) at ¶ 11.
32
Docket 110-6 and 119-6 (CH2M Hill Suitability Study).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 9 of 14
the Court will not grant summary judgment to PND or CH2M Hill at this point. If, after
additional discovery, a party can demonstrate that there is no significant risk of personal
injury, the motion may be renewed. 33
V.
Recovery of Economic Loss in Tort Absent Privity
The District of Alaska Court has previously observed that “Alaska cases
foreshadow a general rule precluding negligence actions by those in privity where only
economic losses are alleged.” 34 This case poses a different question: does Alaska law
generally preclude the recovery of economic loss based upon a negligence theory when
there is a lack of privity? The issue was directly addressed by the Alaska Supreme Court
in State for Use of Smith v. Tyonek Timber, Inc. 35 In that case, a concrete subcontractor
brought a negligence action seeking solely economic loss recovery against a concrete
supplier with which the subcontractor was not in privity. The subcontractor argued that a
tort claim “should extend to purely economic harm sustained by one not in privity with the
supplier of a defective product.” 36 After reviewing its own precedent and the law in other
jurisdictions, the Alaska Supreme Court disagreed and held that the plaintiff’s “lack of
privity with [the defendant] precludes his recovery for pure economic loss based upon a
33
See Northern Power, 623 P.2d at 329 n.9 (Where “the only harm alleged is damage to the
product itself . . . it is entirely appropriate to require plaintiff to show that the product had the
potential to cause harm to persons or other property because such a showing is necessary to
bring the case within the traditional boundaries of tort law.”). The Court observes that expert
testimony may assist in the resolution of whether there is a significant risk of harm.
34
St. Denis v. Dep’t of Hous. & Urban Dev., 900 F. Supp. 1194, 1204 (D. Alaska 1995) (emphasis
added).
35
680 P.2d 1148 (Alaska 1984).
36
Id. at 1151.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 10 of 14
negligence theory.” 37
Accordingly, unless a significant risk of personal injury is
demonstrated, in order to recover economic loss in tort against PND or CH2M Hill, MOA
must demonstrate that another exception to the economic loss doctrine applies.
VI.
Exceptions to the Economic Loss Doctrine
MOA and ICRC assert that Alaska law recognizes several circumstances in which
economic losses are recoverable in tort absent privity. PND and CH2M Hill dispute the
scope and applicability of these exceptions. The Court will address these in this Order to
the extent they apply to claims raised by MOA’s initial Complaint, but not in the context of
MOA’s negligent misrepresentation claim, which was first raised in the MOA’s Amended
Complaint. 38
A. Professional Negligence
The parties have thoroughly discussed the Alaska case law addressing the
applicability of the economic loss doctrine to a professional negligence claim. It is difficult
to discern a clear pattern arising from the Alaska Supreme Court’s statements on this
topic; each party has identified isolated sentences in the case law that support its view.
What is clear from the Alaska Supreme Court’s decisions on professional negligence
claims and the economic loss doctrine is that those rulings were reached after a
considerably fuller presentation of the facts to the Court than has yet occurred here.
37
Id. at 1154. CH2M Hill cites to numerous cases from other jurisdictions applying the economic
loss doctrine absent privity. Docket 131 (CH2M Hill Reply) at 5 n.13.
38
See supra, Part III.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 11 of 14
Indeed, the analyses in those cases were significantly fact-dependent. 39 CH2M Hill in
particular provides a helpful discussion of pertinent policy considerations, arguing that
risk allocation in the construction industry should be determined solely by the contracts
between the various participants and this bargained-for allocation of risk should not be
negated or reallocated by the imposition of tort liability. 40 And yet here, the Court has
only a limited factual record.
In particular, it does not have before it the relevant
contractual language that would allow it to determine the bargained-for risk allocation that
may have occurred for this project. The Court accordingly declines to enter a broad
pronouncement as to the viability or non-viability of a professional negligence claim
seeking economic loss from an entity not in contractual privity on the limited record
currently before the Court. Accordingly, both motions are denied at this juncture without
prejudice to renew.
B. Particularly Foreseeable Plaintiff
In Mattingly v. Sheldon Jackson College, the Alaska Supreme Court allowed for
the recovery in tort of economic losses incurred by a particular plaintiff that the court found
the defendant knew or had reason to know was likely to be economically damaged by its
conduct. 41 In Mattingly, the plaintiff business contracted with Sheldon Jackson College
to clean a drain pipe. College employees excavated and braced a trench to expose the
pipe for Mattingly’s employees to perform their work. The trench collapsed on Mattingly’s
39
See, e.g., State Dep’t of Nat. Resources v. Transamerica Premier Ins. Co., 856 P.2d 766, 773
(Alaska 1993) (reviewing parties’ contractual agreements on allocation of loss).
40
Docket 94 (CH2M Hill Mot.) at 13-14; Docket 131 (CH2M Hill Reply) at 6-7.
41
743 P.2d 356, 360 (Alaska 1987).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 12 of 14
employees. As a result of the employees’ injuries, their ability to work for Mattingly was
impacted. Mattingly also paid for the employees’ medical care and treatment. Mattingly
brought a negligence claim against the college and its employees seeking recovery of his
economic losses. The Alaska Supreme Court allowed for that recovery, holding that “a
defendant owes a duty of care to take reasonable measures to avoid the risk of causing
economic damages, aside from physical injury or property damage, to particular plaintiffs
or plaintiffs comprising an identifiable class with respect to whom defendant knows or has
reason to know are likely to suffer such damages from its conduct. A defendant failing to
adhere to this duty of care may be found liable for such economic damages proximately
caused by its breach of duty.” 42 The court added that to “recover for purely economic
harm, it must be shown that ‘the defendants knew or reasonably should have foreseen
. . . that ascertainable economic damages would ensue from the conduct.’” 43 The court
“emphasize[d] the role of foreseeability as it relates both to the duty owed and to
proximate cause.”44 And the court “stress[ed] that an identifiable class of plaintiffs is not
simply a foreseeable class of plaintiffs. . . . An identifiable class of plaintiffs must be
particularly foreseeable in terms of the type of persons or entities comprising the class,
the certainty or predictability of their presence, the approximate numbers of those in the
class, as well as the type of economic expectations disrupted.”45
42
Id. (quoting People Express Airlines, Inc. v. Consolidated Rail Corp., 495 A.2d 107, 116 (1985)).
43
743 P.2d at 360 (quoting People Express, 495 A.2d at 115).
44
Id.
45
743 P.2d at 361 (quoting People Express, 495 A.2d at 116). But see U.S. ex rel. North Star
Terminal & Stevedore Co., 445 F. Supp. 2d 1063, 1076 n.42 (D. Alaska 2006).
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 13 of 14
Here, MOA asserts that it falls within Mattingly’s holding. On the limited record
currently before the Court, PND or CH2M Hill have not demonstrated that there is no
material factual dispute as to whether each of them “knew or reasonably should have
foreseen” that MOA, as the project owner, comprised a particularly foreseeable plaintiff
that was “at risk and that ascertainable economic damages would ensue from the
conduct.” 46 Accordingly, summary judgment on this basis will be denied without prejudice
to renew.
CONCLUSION
Based on the foregoing, IT IS ORDERED that:
(1) Any alleged damage to the Backlands is not damage to “other property” that
would fall outside of the economic loss doctrine on that basis;
(2) Under Alaska law, the economic loss doctrine applies to parties who are not in
privity so as to generally preclude a negligence claim seeking recovery of only
economic loss; and
(3) PND’s Motion for Summary Judgment – Economic Loss Doctrine at Docket 91
and CH2M Hill’s Motion for Summary Judgment at Docket 94 are otherwise
each DENIED without prejudice to renew.
DATED this 4th day of March, 2015 at Anchorage, Alaska.
/s/ Sharon L. Gleason
United States District Judge
46
Mattingly, 743 P.2d at 360.
Case No. 3:13-cv-00063-SLG, Anchorage v. Integrated Concepts and Research Corp., et al.
Order
Page 14 of 14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?