Friendship Village of Mill Creek v. Lend Lease (US) Construction, Inc.

Filing 36

MEMORANDUM Opinion and Order Signed by the Honorable Michael T. Mason on 3/28/2016.(rbf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FRIENDSHIP VILLAGE OF MILL
CREEK, NFP D/B/A GREENFIELDS OF
GENEVA,
Plaintiff,
v.
LEND LEASE (US) CONSTRUCTION,
Inc.,
Defendant.

)
)
)
)
)
) No. 15 CV 7797
)
) Magistrate Judge Michael T. Mason
)
)
)
)

MEMORANDUM OPINION AND ORDER
Pending before the Court is defendant Lend Lease Construction’s motion to
dismiss count III of plaintiff Friendship Village of Mill Creek’s complaint (dkt. 19). For
the reasons set forth below, defendant’s motion is granted.
I.

Background
The following facts are taken from plaintiff’s amended complaint (dkt. 34) and are

accepted as true for the purposes of the pending motion to dismiss.1 See Hecker v.
Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009). In 2010, Friendship Village entered
into a contract with Lend Lease for the construction of a continuing care retirement
community consisting of 147 independent living units, 51 assisted living units, 26
memory support assisted living units, 43 skilled nursing units, and related common
areas. (Am. Compl. ¶ 5.) Construction began in September 2010. (Id. at ¶ 6.)

1

Friendship Village recently sought and was granted leave to amend its complaint to clarify
certain facts it learned during its investigation in a companion case. The causes of action pled in the
amended complaint remain the same and, as far as the Court can glean, the simple factual amendment
should not alter the parties’ positions on the pending motion to dismiss. As such, the Court proceeds with
its ruling.

In September 2011, during a project walk through, discoloration was noted
around an electrical cover plate in one of the units in the independent living portion of
the property. (Am. Compl. ¶ 9.) Further investigation revealed that there was standing
water on the exterior side of the vapor barrier in the wall cavity throughout the
independent living units and common areas. (Id.) It was determined that although the
project specifications required the installation of a “smart” vapor barrier, Lend Lease’s
subcontractor installed a less expensive vapor barrier that lacked the “smart”
characteristics of the specified vapor barrier. (Id.) This non-specified vapor barrier
trapped condensation in the wall, causing water to collect at the wood stud framing and
resulting in extensive water damage to the building enclosure throughout the
independent living section of the property. (Id. at ¶ 10.)
After the water damage was discovered, Friendship Village and Lend Lease
conducted an investigation to better understand the reasons behind the water intrusion
and to determine how to protect future residents from potential harm stemming from
water intrusion. (Am. Compl. ¶ 12.) Friendship Village hired independent expert CTL
Consulting, LLC (“CTL”) to assist with the investigation, and Lend Lease hired Wiss,
Janney, Elstner Associates, Inc. (“WJE”). (Id. at ¶¶ 26-27.) Using WJE’s computer
analysis of the performance of the non-specified vapor barrier, along with its own
investigation of the walls, CTL was able to determine the causes of the moisture in the
walls, one of which was the installation of the non-specified barrier.2 (Id. ¶ 28.)

2

This was the factual allegation that Friendship was recently granted leave to amend. In its
original complaint, Friendship Village alleged that CTL and WJE collaborated to determine that the nonspecified vapor barrier was the sole cause of the water intrusion. (Compl. (dkt. 1) ¶ 28.)

2

The parties were ultimately required to undertake a number of remedial actions
to fix the damage to the property, including obtaining the expertise, manpower, and
materials to repair the independent living section’s electrical components, drywall,
heating and cooling units, flooring, window treatments, and carpentry. (Am. Compl. ¶
13.) The remedial work took several weeks to complete, which further delayed
inspection by County officials, as well as resident occupancy. (Id. at ¶¶ 13-14, 20-21.)
Separately, Friendship Village has alleged a number of other shortcomings by
Lend Lease relating to (1) the frequent breakdown of the condensing units in the
building’s HVAC system; (2) inadequate cooling to the IT closets and the elevator
machine room; (3) frequent burnout of the sequencers in the VTAC units; (4) various
National Fire Protection Association Life Safety Code violations; and (5) plumbing piping
cracks and dislocation. (Am. Compl. ¶¶ 32-78.)
In its three-count complaint against Lend Lease, Friendship alleges breach of
contract (counts I and II) and negligence (count III.) In a “Summary of Damages”
section, Friendship lays out the damages it seeks to recover for various expenses,
including $368,793.00 for “delayed resident occupancy” and $97,168.67 for
“investigation costs,” both related to the non-specified vapor barrier. (Am. Compl. ¶ 82.)
Friendship also seeks damages for expenses incurred as a result of the other alleged
construction defects enumerated above. (Id.) Lend Lease now asks the Court to
dismiss Friendship’s claim for negligence under Rule 12(b)(6), arguing that Illinois law
does not permit the recovery of purely economic losses in tort.
II.

Standard on a Rule 12(b)(6) Motion to Dismiss
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the
3

complaint for failure to state a claim upon which relief may be granted. Hallinan v.
Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009).
When ruling on a 12(b)(6) motion to dismiss, the Court accepts all well-pleaded factual
allegations as true, drawing all reasonable inferences in plaintiff’s favor. Hecker v.
Deere & Co., 556 F.3d at 580. While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, it must contain enough facts to state
a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550
U.S. at 570).
III.

Analysis
Lend Lease has asked the Court to dismiss Friendship’s claim for negligence,

arguing that the “economic loss rule” set forth in Moorman Manufacturing Co. v.
National Tank Co., 435 N.E.2d 443, 448 (Ill. 1982), forbids the recovery of purely
economic losses in tort.3 Friendship responds, acknowledging that not all of the
damages listed in its summary of damages can be recovered in tort, and seeks leave to
amend its complaint to properly reflect this acknowledgment. Friendship continues to
maintain, however, that the damages for delayed resident occupancy and investigation

3

In Count III, Friendship does not expressly describe Lend Lease's use of the non-specified
barrier as an example of its negligence. Instead, after citing the standard of care set forth in the
agreement, Friendship describes the other alleged shortcomings by Lend Lease as negligent. In any
event, in light of the position Friendship sets forth in its response, and Friendship's incorporation of all
allegations of its complaint into Count III, we will view Count III as a tort claim for negligence that includes
Lend Lease's use of the non-specified vapor barrier.

4

costs related to the non-specified vapor barrier are recoverable in tort under an
exception to the economic loss rule. The Court disagrees.
In Moorman, the Illinois Supreme Court held that a “plaintiff cannot recover for
solely economic loss under the tort theories of strict liability, negligence, and innocent
misrepresentation.” Moorman, 435 N.E.2d at 453. The Court described economic loss
as “damages for inadequate value, costs of repair and replacement of the defective
product, or consequent loss of profits—without any claim of personal injury or damage
to other property.” Id. at 449. The rationale behind the economic loss rule (also known
as the Moorman doctrine) has been explained as follows:
In Moorman, this court [reasoned] that tort law would, if allowed to develop
unchecked, eventually envelop contract law. Contract law serves a vital
commercial function by providing sellers and buyers with the ability to define
the terms of their agreements with certainty prior to a transaction. Where the
duty of a seller has traditionally been defined by contract, therefore,
Moorman dictates that the theory of recovery should be limited to contract
although recovery in tort would be available under traditional tort theories.
Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 636 N.E.2d
503, 513 (Ill. 1994). The Moorman doctrine is not confined to strict liability actions
against product manufacturers, but has been extended to other types of cases including
actions relating to construction defects brought against architects, builders and
developers. See Collins v. Reynard, 607 N.E.2d 1185, 1187 (1992) (Miller, J., specially
concurring) (collecting cases).
The Moorman doctrine is not without exceptions. It will not be applied (1) where
the plaintiff sustained damage, i.e., personal injury or property damage, resulting from a
sudden or dangerous occurrence; (2) where the plaintiff’s damages are proximately

5

caused by a defendant’s intentional, false representation, and; (3) where the plaintiff’s
damages are proximately caused by a negligent misrepresentation by a defendant in
the business of supplying information for the guidance of others in their business
transactions. In re Chicago Flood Litig., 680 N.E.2d 265, 275 (Ill. 1997).
Here, Friendship has not disputed that the damages it seeks are economic in
nature. Instead, according to Friendship, it may recover its damages related to the use
of the non-specified vapor barrier (the investigation costs and delayed resident
occupancy costs) under the “sudden or dangerous occurrence exception” set forth
above.4 In order to apply that exception, “(1) the economic damages must result from a
‘sudden, dangerous, or calamitous event,’ and (2) the event must also cause ‘personal
injury or property damage.’ ” 1324 W. Pratt Condo. Ass’n v. Platt Const. Grp., Inc., 936
N.E.2d 1093, 1100 (Ill. App. Ct. 2010) (quoting In re Chicago Flood Litig., 680 N.E.2d at
275-76). Unfortunately, Friendship has failed to satisfy either prong of this exception.
First, the water infiltration caused by use of the non-specified vapor barrier would
not be considered a sudden, dangerous, or calamitous event under Illinois law. “The
type of harm attendant to a sudden and calamitous event does not flow from
disappointed commercial expectations; rather, it arises from hazards peripheral to the
product’s intended function.” Am. Xyrofin, Inc. v. Allis-Chalmers Corp., 595 N.E.2d 650,
657 (Ill. App. Ct. 1992) (internal quotation omitted). “When characterizing an event as
sudden and calamitous the focus is upon ‘the suddenness of the occurrence of an
event...where such occurrence causes personal injury or damage to property external to

4

Again, Friendship has conceded that the remaining categories of expenses set forth in its
“Summary of Damages” are not recoverable in tort.

6

the defective product which exposes a party to an unreasonable risk of injury to himself
or his property, rather than the suddenness or length of time within which the defect or
cause of the occurrence develops...and manifests itself in the sudden and calamitous
occurrence.’ ” Id. (quoting United Air Lines, Inc. v. CEI Industries of Illinois, 499 N.E.2d
558, 562 (Ill. App. Ct. 1986)).
Although Illinois courts have at times found water infiltration and resulting mold
growth to be a sudden or calamitous occurrence, the circumstances in such cases can
be distinguished from those here. For example, in Muirfield Vill.-Vernon Hills, LLC v. K.
Reinke, Jr. & Co., 810 N.E.2d 235, 249 (Ill. App. Ct. 2004), the plaintiffs (as assignees
of the homeowners) alleged that construction defects led to an excess of moisture into
the interior of a home. Id. at 239. After abnormally high levels of mold and bacteria
were discovered, the homeowners were required to move out of their home and also
experienced damages to their personal effects. Id. In finding that plaintiffs could
recover damages in tort under the sudden and calamitous occurrence exception, the
Muirfield court acknowledged that although the “mold and bacterial infestation grew
gradually,...its manifestation was sudden and calamitous, damaging the [homeowner’s]
property and requiring them to flee their house or experience the likelihood of personal
injury.” Id. at 249.
Here, on the other hand, no residents were forced to flee their homes or suffered
damage to their personal property as a result of the water damage caused by the faulty
vapor barrier. In fact, at the time the water infiltration was discovered, the independent
living units (and the entire facility for that matter) were unoccupied. As defendant
argues, the court’s reasoning in 1324 W. Pratt Condominium Ass'n v. Platt Const.
7

Group, Inc., 936 N.E.2d 1093 (Ill. App. Ct. 2010), is better applied here. In that matter,
a condominium association filed claims against a construction company after faulty
construction (and a subsequent storm) led to water infiltration and mold growth in
residential units and common areas. The Court held that the mold outbreak was not a
sudden or calamitous occurrence where there were no allegations that residents “were
forced out of their homes due to the mold.” Id. at 1100-01. The same conclusion is
appropriate here where there were no residents even living in the facility at the time of
the water infiltration. In reaching this conclusion, the Court rejects plaintiff’s assertion
that the potential health risks to future residents and any delayed occupancy transforms
the water infiltration into a sudden and calamitous occurrence. Such speculative
allegations are “insufficient to sustain a cause of action in tort.” Id. at 1101.
More importantly, even if the water damage was considered a sudden or
dangerous occurrence, Friendship has not alleged personal injury or damage to other
property to satisfy the second prong of the exception. As Friendship points out, it has
alleged that the use of the non-specified vapor barrier caused damage to the building
enclosure and other various components of the independent living section of the facility.
But “[m]ere damage to any property is not sufficient; instead, the property must be ‘other
property’ extrinsic from the product itself.” ExxonMobil Oil Corp. v. Amex Const. Co.,
702 F. Supp. 2d 942, 969 (N.D. Ill. 2010) (citing Mars, Inc. v. Heritage Builders of
Effingham, Inc., 763 N.E.2d 428, 436 (2002)); see also Miller v. U.S. Steel Corp., 902
F.2d 573, 576 (7th Cir. 1990) (“Incidental property damage...will not take a commercial
dispute outside the economic loss doctrine...”). Here, where Friendship contracted with
Lend Lease for the construction of the entire residential facility, not just the vapor
8

barrier, the damage to the building enclosure and other various building components
cannot be considered other property under the exception to the Moorman doctrine. The
investigation and delayed occupancy costs associated with the faulty vapor barrier are
pure economic losses that stem directly from Friendship’s “disappointed commercial
expectations,” and which are not recoverable in tort. In re Chicago Flood Litig., 680
N.E.2d at 276; see also Redarowicz v. Ohlendorf, 441 N.E.2d 324, 327 (Ill. 1982). As
such, plaintiff’s claim for negligence cannot stand and is dismissed with prejudice.
IV.

Conclusion
For the reasons set forth above, defendant’s motion to dismiss count III is

granted. It is so ordered.

ENTERED:

__________________________
Michael T. Mason
United States Magistrate Judge

Dated: March 28, 2016

9