Namaste Solar Electric, Inc. v. HB Solar of Southern California, Inc. et al
Filing
35
ORDER denying 31 Motion for Summary Judgment by Judge R. Brooke Jackson on 8/26/14.(jdyne, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 14-cv-00080-RBJ
NAMASTE SOLAR ELECTRIC, INC., a Colorado Cooperative,
Plaintiff,
v.
HB SOLAR OF SOUTHERN CALIFORNIA, INC., a California Corporation;
PLUMP ENGINEERING, INC., a California Corporation;
RICHARD A. PLUMP, P.E., an individual,
Defendants.
ORDER
This matter comes before the Court on the Plump Defendants’ (Plump Engineering, Inc.
and Richard Plump, P.E.) Motion for Summary Judgment [ECF No. 31]. The Court exercises
diversity jurisdiction pursuant to 28 U.S.C. § 1332. For the following reasons, the motion is
denied.
BACKGROUND
This case arises from the design, sale, and installation of a roof-based solar energy
collection system for the City of Boulder’s Betasso Waste Water Treatment Facility. The
general contractor on the project, McKinstry Essention, Inc., subcontracted with Namaste Solar
Electric, Inc. (“Namaste Solar”) for the installation of a solar energy collection system for the
project. Namaste Solar, a solar installer based in Boulder, Colorado, contracted with defendant
HB Solar of Southern California, Inc. (“HBS”) for the design and fabrication of the solar
collection system. Among other things, the system had to operate successfully notwithstanding
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Boulder’s occasional extreme weather conditions, including up to a 135 mph wind load. HBS
represented that it could provide such a system, that it would take three days to complete the
engineering and design work, that the system could withstand wind speeds up to 150 miles per
hour, and that the design calculations would be stamped and sealed by a Colorado-licensed
engineer.
HBS recommended Plump Engineering, Inc. (“PEI”) for the purpose of providing review
and approval of the design calculations. PEI is an architectural, structural and civil engineering,
and land surveying firm located in Anaheim, California. Richard Plump is a professional
engineer licensed in the state of Colorado. I will frequently refer to the Plump defendants
collectively as Plump unless otherwise indicated.
On August 23, 2011 Plump issued the stamped set of calculations and specifications for
the project. Upon review, however, Namaste Solar found that the stamped drawings contained
incorrect design loads, in particular noting that the designs could only withstand 85 mph winds,
not the 150 mph winds the stamp and seal indicated. Plump issued a revised set of the drawings
the next day. HBS assured Namaste Solar that the design had been revised and corrected. Then,
on August 30, 2011 Plump issued yet another set of structural calculations, with Mr. Plump
representing that “I have reviewed the solar system and the attached 27 sheets of calculations and
it is my professional opinion that the solar system will meet the snow load and wind load
requirements as designed.” PEI Structural Calculations for Client HB Solar [ECF No. 32-3]. 1
On September 2, 2011, following the submission of the final design and stamped calculations,
Namaste Solar submitted a purchase order with HBS for the solar system.
1
Though the typed date on this form says August 23, 2011, a handwritten date of August 30, 2011 is
included on the form in the same ink in which the form is signed. The Court presumes that this new date
was indicated by the signor, Mr. Plump, though such a finding is not material to the resolution of this
motion.
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The installation of the system was completed in December 2011. The City of Boulder
inspected and approved the installation on December 15, 2011. Namaste Solar claims that on
December 31, 2011 the system failed due to high winds, resulting in detached panels and other
damage. A second wind event allegedly occurred on January 23, 2012, causing further damage.
On or about February 2, 2012, Namaste Solar was advised that the City of Boulder refused to
accept the solar system.
PROCEDURAL POSTURE
On December 3, 2013 Namaste Solar filed this action in the Boulder District Court.
Plump (with HBS’s consent) removed the case to federal district court on January 9, 2014
pursuant to 28 U.S.C. § 1441, asserting diversity jurisdiction under 28 U.S.C. § 1332.
The Amended Complaint lists six causes of action, four of which are asserted solely
against HBS. However, although HBS was served, it did not respond. A clerk’s default was
entered against HBS on April 16, 2014.
The two claims asserted against the Plump defendants are (1) negligent misrepresentation
and (2) negligence. Namaste Solar seeks damages resulting from damage to the solar collection
system, as to which it claims title had not yet passed to the City of Boulder, and related economic
losses. On April 30, 2014 the Plump defendants filed a motion for summary judgment on the
grounds that the economic loss rule bars the two claims against it. [ECF No. 31]. That motion
became ripe for review on June 23, 2014 upon the filing of Plump’s reply brief. [ECF No. 34].
STANDARD OF REVIEW
The Court may grant summary judgment if “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
moving party has the burden to show that there is an absence of evidence to support the
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nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving
party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A
fact is material “if under the substantive law it is essential to the proper disposition of the claim.”
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). A material fact is genuine if “the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248.
The Court will examine the factual record and make reasonable inferences therefrom in the light
most favorable to the party opposing summary judgment. Concrete Works of Colorado, Inc. v.
City and County of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).
ANALYSIS
“The economic loss rule is intended to maintain the sometimes blurred boundary between
tort law and contract law.” A.C. Excavating v. Yacht Club II Homeowners Ass’n, Inc., 114 P.3d
862, 865 (Colo. 2005). The Colorado Supreme Court has explained that “a party suffering only
economic loss from the breach of an express or implied contractual duty may not assert a tort
claim for such a breach absent an independent duty of care under tort law.” Id. at 865 (citations
omitted). While contract obligations develop from promises made by the parties, tort obligations
arise from legal duties. Id. at 865–66.
“The key to determining whether the economic loss rule bars a tort claim is ‘determining
the source of the duty that forms the basis of the action.’” Jorgensen v. Colorado Rural Props.,
LLC, 226 P.3d 1255, 1258 (Colo. App. 2010) (quoting Town of Alma v. AZCO Constr., Inc., 10
P.3d 1256, 1262 (Colo. 2000)). In determining the source of the duty courts consider “(1)
whether the relief sought in negligence is the same as the contractual relief; (2) whether there is a
recognized common law duty of care in negligence; and (3) whether the negligence duty differs
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in any way from the contractual duty.” BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo.
2004) (citing Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269–70 (Colo. 2000)). Thus, “even a
duty separately recognized under tort law is not independent if it is also imposed under the
parties’ contract.” A Good Time Rental, LLC v. First Am. Title Agency, Inc., 259 P.3d 534, 537
(Colo. App. 2011) (citations omitted).
With those broad principles in mind, I turn to the two claims asserted against the Plump
defendants.
A. Negligent Misrepresentation.
Plaintiff’s theory, simply stated, is that because of Plump’s negligent misrepresentation
that the design of the system met the wind load requirements of the project, plaintiff agreed to
purchase the system from HBS.
In Colorado, the elements of negligent misrepresentation are:
(1) one in the course of his or her business, profession or employment; (2) makes
a misrepresentation of a material fact, without reasonable care; (3) for the
guidance of others in their business transactions; (4) with knowledge that his or
her representations will be relied upon by the injured party; and (5) the injured
party justifiably relied on the misrepresentation to his or her detriment.
Allen v. Steele, 252 P.3d 476, 482 (Colo. 2011) (citation omitted). “The duty underlying the tort
of negligent misrepresentation—to refrain from supplying false information to others for
guidance in a transaction involving a pecuniary interest—is recognized at common law.” A
Good Time Rental, 259 P.3d at 541.
Colorado courts have expounded on the scope of negligent
misrepresentation claims, clarifying that “the scope of this tort pertains to conduct that leads or
induces another to enter into a transaction or agreement, not to representations directly related to
performance of a contract.” Id.
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The elements of negligent misrepresentation appear to fit the facts alleged by Namaste
Solar. However, this begs the question of whether the claim runs afoul of the economic loss rule.
To answer that question, I first turn back to Town of Alma, the Colorado Supreme Court’s
cornerstone case on the economic loss rule. After explaining the rule, the Court noted certain
exceptions. “[W]e have recognized that some special relationships by their nature automatically
trigger an independent duty of care that supports a tort action even when the parties have entered
into a contractual relationship.” 10 P.3d at 1263 (emphasis added). One of the examples the
Court listed as an exception was negligent misrepresentation. Id. (citing Keller v. A.O. Smith
Harvestore Products, Inc., 819 P.2d 69, 72 (Colo. 1991).
That this was never meant as a holding that negligent misrepresentation is always exempt
from the economic loss rule is evident from the Keller case itself. The Kellers purchased a grain
storage system in reliance on the manufacturer’s representations in advertising materials that its
system would reduce or eliminate the need for protein supplements in feeding dairy herds. By
the terms of the purchase agreement, however, which contained an integration clause, the buyers
represented that they did not rely on any advertisements, brochures or other written statement
that they might have read. The Court concluded that a negligent misrepresentation claim based
on representations during the course of the sale can in some circumstances be brought despite the
subsequent execution of the fully integrated sales agreement. 819 P.2d at 72. Significantly, the
Court added that “a contracting party’s negligent misrepresentation of material facts prior to the
execution of an agreement may provide the basis for an independent tort claim asserted by a
party detrimentally relying on such negligent misrepresentation.” Id.
In BRW, a case in which claims of both negligence and negligent misrepresentation were
determined to have been barred by the economic loss rule, the Court distinguished Keller on the
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basis that the contracting party’s negligent misrepresentation of material facts to the Kellers
occurred before the execution of the contract, not during the performance of the contract. 99
P.3d at 75. Similarly, in URS Group, Inc. v. Tetra Tech FW, Inc., 181 P.3d 380 (Colo. App.
2008), the court (citing BRW) reiterated that misrepresentations that occur before the parties
enter into a contract are not barred by the economic loss rule. 181 P.3d at 391.
I will return to BRW below, but I need go no further here to decide that Plump’s motion
to dismiss Namaste Solar’s negligent misrepresentation claim under the economic loss rule must
be denied. According to the plaintiff, Plump’s alleged misrepresentation that the system would
meet wind load requirements occurred before Namaste Solar agreed to purchase the system from
HBS and likewise induced Namaste Solar to enter into the contract.
B. Negligence.
Plaintiff also alleges that Plump’s negligent performance of review and evaluation of
HBS’s plans and specifications caused Namaste Solar’s losses irrespective of the inducement to
contract with HBS. It is not entirely clear to me why plaintiff feels the need to assert this
alternative theory, but I conclude that the economic loss rule does not bar it. The analysis is a
little different.
Namaste Solar alleges that Plump owed it a duty to cause the solar system to be designed
in a good and workmanlike manner, and to exercise reasonable care in its design. First Amended
Complaint [ECF No. 4] at ¶ 98. Namaste Solar adds that Plump’s duty of care “included the
duty to ensure that all design was performed in accordance with industry standards, applicable
codes, and applicable plans and specifications, or a greater duty of care if reasonably required
under the circumstances.” Id. at ¶ 101. Although the damages arise in part from damage to
property that Namaste Solar allegedly still owned at the time of the wind incidents, as well as
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other economic losses, I will assume for present purposes that the economic loss rule potentially
applies to at least a part if not all of the claimed losses.
As indicated above, the Court in BRW listed three factors to consider in determining the
source of the duty at issue. Applying the first factor, whether the relief sought in negligence is
the same as the contractual relief, the answer is “no,” for the simple reason that Plump’s contract
did not impose a duty to perform his services in accordance with the standard of care applicable
to licensed professional engineers. This stands in contrast with BRW itself.
In BRW, the City of Denver hired an engineer, BRW, to design plans and specifications
for the construction of two bridges over the Platte River. In its contract BRW agreed that its
drawings and specifications would “represent a thorough study and competent solution for the
Project as per usual and customary professional standards and shall reflect all architectural and
engineering skills applicable to that phase of the Project.” After BRW completed the drawings
and specifications the City hired a general contractor for the project, which in turn subcontracted
with Dufficy to provide fabrication and painting of structural steel in accordance with the
specifications. Dufficy ran into problems with the painting requirements and incurred losses on
its subcontract. It then sued BRW for negligence and negligent misrepresentation, essentially on
the basis that the design and specifications for the paint system were inappropriate for Denver’s
altitude and arid climate.
As in the present case, BRW had no direct contractual relationship with Dufficy. That
notwithstanding, the Court concluded that in large construction projects the parties rely on a
network of interrelated contracts to allocate their risks, duties, and remedies. Id. at 72–73. It
further held that BRW’s duty to perform its work in accordance with professional standards, i.e.,
the standard of care applicable to engineers, was not independent of its contract with the City
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(the foundation on which the network of interrelated contracts was built) but was expressly set
forth in the contract. Id. at 74.
I will assume without deciding (to Plump’s benefit for present purposes) that the
relationship among Namaste Solar, HBS, and Plump is an interrelated network of contracts that
could give rise to a contractual duty and trigger the economic loss rule. Nevertheless, unlike the
engineer’s contract in BRW, Plump’s contract with HBS does not contain an agreement to
perform the services in accordance with the standard of care applicable to competent
professionals who perform similar services. Rather, in the contract, entitled “Confirmation of
Agreement for Engineering Services,” Plump simply agreed to “[r]eview the solar panel wind
calculations performed under the supervision of Plump Engineering, Inc.” [ECF No. 31-1 at 3].
If Plump owed Namaste Solar a duty to perform his review according to the standard of care
applicable to professional engineers, i.e., non-negligently, the duty was not expressed in the
contract and, under BRW, would not be barred by the economic loss rule.
Later Colorado cases decided by both federal and state courts return to the same theme,
finding that “even if the duty would be imposed in the absence of a contract, it is not independent
of a contract that ‘memorializes’ it.” Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573
F.3d 947, 962 (10th Cir. 2009) (quoting BRW, 99 P.3d at 74). Similarly, “[a]n independent duty
exists only if the duty arises from a source other than the relevant contract, and if the duty is not
also imposed by the contract.” Steward Software Co., LLC v. Kopcho, 275 P.3d 702, 709 (Colo.
App. 2010). And, “even a duty separately recognized under tort law is not independent if it is
also imposed under the parties’ contract.” A Good Time Rental, 259 P.3d at 537.
The parties debate the applicability of two relatively recent decisions by different panels
of the Colorado Court of Appeals. In Stan Clauson Associates, Inc. v. Coleman Brothers
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Construction, LLC, 297 P.3d 1042 (Colo. App. 2013), a developer hired a land planner to
provide a development analysis for a property in Basalt, Colorado. Things did not go well, and
the land planner ultimately sued the developer for breach of contract. The developer
counterclaimed, contending that the land planner negligently provided inaccurate advice about
whether the property could be subdivided and developed. The contract imposed an express duty
on the land planner “to make a good faith effort to present the project in the application and
hearing process in a manner that is responsive to the code and other identified issues” as well as
an implied duty of good faith and fair dealing. Id. at 1046–47. The trial court granted summary
judgment dismissing the negligence counterclaim as barred by the economic loss rule.
On appeal, the Court of Appeals interpreted Colorado law as follows:
Professionals are held to duties and standards of care independent of those
established by contracts for their services. Professional standards of care reflect
the policy that members of professions must do their work not just reasonably
well, but rather “in a manner consistent with members of the profession in good
standing.” Command Commc’ns, Inc. v. Fritz Cos., 36 P.3d 182, 189 (Colo. App.
2011). If a contract for professional services does not explicitly adopt the
professional standard of care, and Colorado law identifies the provider as a
professional, fulfillment of the professional standard of care is a duty that is
independent of the services agreement, and the economic loss rule will not bar a
claim for breach of the professional duty. See BRW, Inc., 99 P.3d at 74 (economic
loss rule barred professional tort claim where contract explicitly adopted the
“usual and customary professional standards [of care].”
Id. at 1045.
The parties’ contract, unlike the contract in BRW, did not explicitly adopt the professional
standard of care. Nevertheless, the appellate panel affirmed the grant of summary judgment but
only because it concluded that land planners are not held to a professional standard of care. Id. at
1047. In that situation, “the allegedly negligent actions of which Coleman complains provide a
basis for a breach of contract claim, and there is no duty of care independent of the parties’
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agreement.” Id. at 1048. The Stan Clauson court contrasted land planners with engineers,
attorneys, doctors and others who are held to a professional standard of care. Id. at 1045.
In Engeman Enterprises, LLC v. Tolin Mechanical Systems Co., 320 P.3d 364 (Colo.
App. 2013), cert. denied, No. 13SC256, 2014 WL 620357 (Feb. 18, 2014), the defendant, a
company that designs, installs, maintains and repairs cooling systems, was engaged to perform
emergency repairs on an ammonia-charged cooling system that failed. While the defendant
began its work the parties’ representatives signed two agreements that required the defendant to
perform the work in a “prudent and workmanlike manner.” 320 P.3d at 367. However, while
trying to transfer ammonia from a portable tank into the cooling system defendant’s employee
caused ammonia to flow from the system into the tank, resulting in an explosion and substantial
damage. There was a question as to whether the defendant owed the plaintiff an independent
duty of care to handle anhydrous ammonia, a hazardous substance, safely. Plaintiff conceded
that its contract required the defendant to exercise reasonable care in the performance of its
work, whether as expressed in the written agreement or implied in an oral contract. As such, the
Court concluded that while the defendant would have owed a common law duty of care to handle
ammonia safely, the duty did not differ from that imposed by the contract. “[B]ecause a
reasonable duty of care owed by defendant was at least implied in the contract, it follows that
plaintiff has not shown any duty independent of the contract, and the economic loss rule bars the
tort claim and holds the parties to the contract’s terms.” Id. at 370.
Stan Clauson and Engeman are not necessarily inconsistent. Both cases recognize that all
contracts contain either an express or an implied duty to perform one’s contractual obligations in
a reasonable and workmanlike manner. Stan Clauson added that if the defendant is a
professional, such as an engineer, he has a duty independent of the contract, not just to do the
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work reasonably well but in a manner consistent with members of the profession in good
standing. Engeman did not discuss whether a professional owes a different duty of care than
other contracting parties.
Plump argues that Stan Clauson was wrongly decided. Reply [ECF No. 34] at 2–3. If so,
then Plump’s forum to correct the Court of Appeals’ error was either the Court of Appeals or the
Colorado Supreme Court. Instead, Plump removed the case from state court to this Court. My
job is not to overrule the Colorado Court of Appeals but to apply its rulings until they are
changed by the appropriate state court.
In short, still applying the first of BRW’s three factors, I conclude that Plump did not have
an express contractual duty, even to HBS, to perform its work according to the standard of care
applicable to licensed professional engineers. Under Stan Clauson, Plump owed an independent
duty to HBS to perform its engineering services “not just reasonably well, but rather ‘in a
manner consistent with members of the profession in good standing.’” 297 P.3d at 1045. The
economic loss rule therefore does not apply.
Of course, Namaste Solar still must show that this independent duty of care was owed not
just to HBS but also to Namaste Solar. In its motion for summary judgment, and again in its
reply brief, Plump asserts, without further analysis or citation of law, that “Defendants owed
Namaste no independent duty, as there was no special relationship between them which would
give rise to such a duty.” [ECF No. 31 at 6; ECF No. 34 at 2–3]. The Court of Appeals in the
BRW case held that licensed engineers owe contractors and subcontractors who are relying on the
engineer’s plans and specifications a duty at common law “to employ that degree of knowledge,
skill, and judgment ordinarily possessed by members of that profession and to perform faithfully
and diligently any service undertaken as an engineer in the manner a reasonably prudent engineer
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would under the same or similar circumstances.” Dufficy & Sons, Inc. v. BRW, Inc., 74 P.3d 380,
384 (Colo. App. 2002). The Colorado Supreme Court did not confirm or deny that engineers
have such a common law duty, holding only that because BRW’s contract expressly imposed a
professional standard of care, the common law duty was not independent of the contract, and the
economic loss rule was therefore triggered. 99 P.3d at 73–74. Because the parties here did not
brief the question whether an engineer owes a common law duty of care to a party with which it
has no direct contractual relationship but which it knows is relying on the competent
performance of its services, I do not decide that question today. 2
ORDER
For the foregoing reasons, Plump Defendants’ Motion for Summary Judgment [ECF No.
31] is DENIED.
DATED this 26th day of August, 2014.
BY THE COURT:
___________________________________
R. Brooke Jackson
United States District Judge
2
Contrary to Plump’s motion, [ECF No. 31 at 6], the Court of Appeals did not hold or suggest in City of
Westminster v. Centric-Jones Constructors, 100 P.3d 472, 483 (Colo. App. 2003), that “courts have flatly
refused to expand a finding of independent duty to participants in commercial construction projects.”
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