Cotton Exchange Investment Properties, LLC v. Xcel Air Conditioning Services, Inc. et al

Filing 51

ORDER AND REASONS denying 17 and 35 Motions to Dismiss for Failure to State a Claim, as set forth in document. Signed by Judge Eldon E. Fallon on 8/25/2017. (jls)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

COTTON EXCHANGE INVESTMENT
PROPERTIES, LLC

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CIVIL ACTION

V.

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NO. 16-17543

XCEL AIR CONDITIONING SERVICES, INC.
ET AL

SECTION "L"(5)

ORDER & REASONS
Before the Court is Defendant Xcel Air Conditioning Services, Inc. Motions to Dismiss
for Failure to State a Claim. R. Docs. 17, 35. Plaintiff opposes the motion. R. Doc. 24. The Court
held oral arguments on this matter on August 23, 2017. Having considered the parties’
arguments, submissions, and the applicable law, the Court now issues this Order and Reasons.
I.

BACKGROUND
This case arises from damages allegedly resulting from defective maintenance and repairs

to the HVAC system of a New Orleans hotel. R. Doc. 1 at 1. Plaintiff Cotton Exchange Investment
Properties LLC (“CEIP”), a Delaware limited liability company, alleges that its hotel property was
damaged by water and moisture exposure during a renovation of the HVAC system performed by
Defendant Xcel Air Conditioning Services, Inc. R. Doc. 1 at 1. Xcel Air Conditioning Services
(“Xcel”) is a Louisiana corporation that performs HVAC installations and repairs. R. Doc. 1 at 1.
Defendant Commercial Renovation Service, Inc. (“CRS”) is a Georgia corporation that provides
general contracting services. R. Doc. 23 at 2. Defendant John T. Campo & Associates is a
Louisiana corporation that specializes in architectural and engineering services. 1 R. Doc. 23 at 2.
Plaintiff contends that in 2014, Supreme Bright New Orleans LLC (“Supreme Bright”)

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Defendants CRS and Campo were added to the suit in Plaintiff’s amended pleadings. R. Doc. 23.

owned the Cotton Exchange Building in downtown New Orleans and executed several contracts
for its renovation. R. Doc. 23 at 2. In January 2014, Supreme Bright contracted with Xcel to
provide HVAC services, including the maintenance of the hotel’s cooling tower, roof top units,
and chilled water pumps. R. Doc. 1 at 3. That same month, Supreme Bright entered into a contract
with Campo whereby Campo would provide architectural, design, and engineering services. R.
Doc. 23 at 4. A few months later, Supreme Bright contracted with CRS to serve as general
contractor for the project. R. Doc. 23 at 2. Management of the HVAC system was included in both
the contracts with Campo and CRS. R. Doc. 23 at 3, 4. In June 2015, the hotel was bought by
Pacific Hospitality Group (“PHG”), who assumed the rights to all three contracts. R. Doc. 1 at 3.
PHG subsequently assigned all of its rights, title, and interest in the purchase to Plaintiff, including
the contracts with Xcel, Campo, and CRS. R. Doc. 1 at 4. Plaintiff alleges that under the terms of
the contract, all three defendants agreed to indemnify CEIP for any property damage caused by
negligent acts or omissions related to the scope of the work. R. Doc. 1 at 5; R. Doc. 23 at 3-4.
Plaintiff alleges that the hotel suffered serious water/moisture damage as a result of Xcel’s
defective or faulty workmanship, including water damaged walls and floors due to exposed chilled
water piping, missing or improperly sealed insulation, and cracked or leaking draining pans. R.
Doc. 23 at 7. Plaintiff alleges that due to this extensive damage, they had to close the hotel and
incurred damages from loss of use and repairs. R. Doc. 23 at 6. Plaintiff canceled the HVAC
contract pursuant to its terms in December 2015, and notified Xcel of the damage on three
occasions. R. Doc. 1 at 5, 6. It appears that Xcel did not respond to the demand for indemnity. R.
Doc. 1 at 6. Additionally, Plaintiff avers that it demanded indemnity from CRS and Campo, but
was unsuccessful in its demand. R. Doc. 23 at 7.
Plaintiff’s theory of recovery involves breach of contract and negligence claims against all

three Defendants and breach of warranty of good workmanship claims against CRS and Campo.
R. Doc. 23 at 7-16. Plaintiff alleges that it owns the rights to the three contracts and that defects
and deficiencies in the work each party performed caused extensive damage to the floors, walls,
and other aspects of the hotel. R. Doc. 23 at 7-16. Plaintiff argues that each defendant breached its
respective contract by failing to properly perform the required work and failing to indemnify
Plaintiff for the resulting damage. R. Doc. 23 at 7-16. Plaintiff also alleges that the damage was
the direct and proximate result of the parties’ negligence. R. Doc. 23 at 9. Plaintiff avers that each
party owed a duty of reasonable care to perform its work in a manner that did not create an
unreasonable risk of harm, and that each party negligently violated this duty when it unreasonably
damaged the hotel. R. Doc. 23 at 9. Plaintiff also asserts that the parties knew, or should have
known, that negligent performance would cause harm. R. Doc. 23 at 9.
II.

PRESENT MOTIONS
Defendant Xcel filed a motion to dismiss for failure to state a claim, arguing that

Plaintiff’s alleged facts are insufficient to state a plausible claim for relief. 2 R. Doc. 17 at 1. In
particular, Xcel avers that Plaintiff brings suit for breach of a contract to which it is not a party
and for which there can be no assignment of benefits. R. Doc. 17 at 1. Xcel argues that the
contract does not identify Plaintiff as a beneficiary of the contract or a party with any rights
under it. R. Doc. 17-1 at 2. Defendant further alleges that the agreement between PHG and
Plaintiff failed to assign any rights to the HVAC contract from PHG to Plaintiff, and that such an
assignment is not allowed under Louisiana law. R. Doc. 17-1 at 2.

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Defendants submitted two motions to dismiss – one in response to the original complaint and the other in
response to the supplemental complaint. Defendants’ motions are virtually identical, save for the inclusion of the
additional parties. R. Docs. 17, 35.

III.

LEGAL STANDARDS
a. Federal Rule of Civil Procedure 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) allows a party to file a motion to dismiss for

“failure to state a claim upon which relief can be granted.” When a court considers a motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6) “well-pleaded facts are viewed in the
light most favorable to the plaintiff, but plaintiff must allege facts that support the elements of
the cause of action in order to make out a valid claim.” City of Clinton, Ark. v. Pilgrim’s Pride
Corp., 632 F.3d 148, 152 (5th Cir. 2010) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007)). “To avoid dismissal, a plaintiff must plead sufficient facts to ‘state a claim to relief
that is plausible on its face.’” Gentilello v. Rege, 627 F.3d 540, 544 (5th Cir. 2010) (quoting
Twombly, 550 U.S. at 570). A court “do[es] not accept as true conclusory allegations,
unwarranted factual inferences, or legal conclusions.” Plotkin v. IP Axess Inc., 407 F.3d 690, 696
(5th Cir. 2005).
b. Louisiana Contractual Interpretation
“The words of a contract must be given their generally prevailing meaning.” La. Civ.
Code. art. 2047; see also Cadwallader v. Allstate Insurance Company, et al., 2002-1637 (La.
6/27/03), 848 So.2d 577, 580. “When the words of a contract are clear and explicit and lead to no
absurd consequences, no further interpretation may be made in search of the parties’ intent.” La.
Civ. Code. art. 2046. “When interpreting a contract, the court must discern the parties’ common
intent.” Cadwallander, 8848 So. 2d at 580. “Where the terms of the contract are clear and
explicit and do not lead to absurd consequences, no further interpretation may be made in search
of the intent of the parties.” Id. “‘[W]ords of a contract must be given their generally prevailing
meaning,’ but ‘[w]ords of art and technical terms must be given their technical meaning when

the contract involves a technical matter.’” Id. (quoting La. Civ. Code. art. 2047) (alterations in
original). “Each provision in [the] contract must be interpreted in light of the other provisions so
that each is given the meaning suggested by the contract as a whole.” La. Civ. Code. art. 2050.
IV.

DISCUSSION
Defendant Xcel argues that dismissal is required for three reasons. First, Xcel avers that

the HVAC contract is “strictly personal,” and thus its assignment is prohibited under Louisiana
law. R. Doc. 17-2 at 3-4. Second, Xcel contends that because the contract could not be assigned,
Plaintiff’s claims are precluded by the subsequent purchaser doctrine. R. Doc. 17-2 at 5. Third,
Xcel avers that the case must be dismissed because Plaintiff’s complaint failed to include proof
of the assignment from PHG. R. Doc. 17-1 at 2. However, Xcel’s argument is untenable because
the HVAC contract is not strictly personal. Thus, the contractual rights could be assigned to
CEIP, and if they were, the subsequent purchaser doctrine is irrelevant. Regarding whether the
contractual rights were in fact assigned, Plaintiff’s complaint includes sufficient facts to bring the
claim.
a. The HVAC Service Contract Was Not Strictly Personal Because It Did Not
Require Xcel’s Unique Skills, Nor Was It for Supreme Bright’s Exclusive
Benefit.
Under Louisiana Civil Code Article 1984, contractual rights and obligations are heritable
and assignable unless the law, terms, or nature of the contract preclude assignment. Strictly
personal contracts, which involve a “performance [that] can be enforced only by the obligee, or
only against the obligor,” are unassignable. La. Civ. Code art. 1766. Under Article 1766, an
obligation is presumed to be strictly personal when it requires the special skills or qualifications
of the obligor, or when the performance is intended for the exclusive benefit of the obligee.
However, the Louisiana Civil Law Treatise emphasizes that the parties’ intent and the nature of

the performance are more indicative of whether the contract is strictly personal than rigid
adherence to the general rule. 5 Saul Litvinoff & Ronald J. Scalise Jr., Louisiana Civil Law
Treatise, Law of Obligations § 4.11 (2d ed. 2016).
Contractual rights and obligations may be strictly personal on the part of the obligor or
obligee. A strictly personal contract on the part of the obligor requires the obligor’s special skills
and qualifications. Such contracts are generally not assignable because the obligee likely relied
on that specific provider for a particular reason such as skill, education, training, experience,
social status, or professional standing. Id. § 4.12. Allowing a contract to be assigned to a
substitute party would frustrate an obligee who selected that particular obligor to perform the
duties of the contract. Id. The quintessential example of this type of contract is the one between a
portrait subject and the artist. Because the artist was selected for this particular ability and style,
he may not transfer his obligation to paint the portrait to another artist. However, the
classification of such contracts as strictly personal is merely a presumption. La. Civ. Code art.
1766. Thus, a contract requiring a special or unique skill may not be strictly personal when the
obligee demonstrates that it would be content receiving performance from another professional.
5 Litvinoff & Scalise, § 4.12. Ultimately, the Louisiana Civil Law Treatise notes that “a different
conclusion should prevail upon a clear showing of strong circumstances indicating a contrary
intent of the parties.” Id.
Alternatively, a contract may be strictly personal on the part of the obligee if it is for the
obligee’s exclusive benefit. La. Civ. Code art. 1766. Such an obligation is enforceable by the
obligee alone, who retains the sole interest in performance. 5 Litvinoff & Scalise, § 4.13. As the
Louisiana Civil Law Treatise explains, unlike an obligation strictly personal on the part of the
obligor, an obligation that is strictly personal on the part of the obligee may be heritable because

the obligor’s performance is not frustrated or encumbered by a change in obligee. Id.
Louisiana courts emphasize that the decisive element in determining whether a contract is
strictly personal is the nature of the performance. For example, in Bryan v. Griggs, the Second
Circuit Court of Appeals of Louisiana found that a contract for a particular real estate
developer’s services in real estate financing, tax planning, and economic development was
strictly personal. 128 So.3d 1255, 1264 (La. Ct. App. 2013). The court reasoned that Plaintiff’s
representations regarding his myriad of special skills, lengthy resume, and previous work as an
economic development consultant induced Defendants to engage his services. Id. By holding
himself out as such a distinctly qualified candidate, Plaintiff obligated himself to performing
services that he was uniquely able to provide. Id. Thus, the court found that Plaintiff could not
assign his obligation to other members of his corporation because there was no demonstration
“that any person associated with [the company] had the skills or qualifications possessed by
Bryan.” Id. at 1265. Because Plaintiff, and Plaintiff alone, had the requisite skills to fulfill the
obligation, the contract was strictly personal and thus unassignable. Id.
Similarly in Victorian v. Victorian, the Louisiana Supreme Court considered whether a
contract under which one brother conveyed land to his younger brother in exchange for a lifetime
of personal care was strictly personal to either party. 411 So.2d 473, 476-77 (La. Ct. App. 1982).
The court held that it was strictly personal to the defendant, who was obligated to care for his
brother because “Plaintiff wanted more from his brother than the performance of these services.
He wanted his brother’s personal care and attention.” Id. at 478 (emphasis added). Even though
other people may have been qualified to provide care, Plaintiff illustrated that no one else’s
services would suffice. Id. The court also found that the contract was strictly personal to the
obligee, the infirm brother, because it was exclusively for his enjoyment and produced no

benefits for his successors. Id.
In contrast, Louisiana courts have consistently held that commercial supply contracts are
not strictly personal. In Lomark, Inc. v. LavigneBaker Petroleum, L.L.C., the court held that a
gasoline supply contract was not strictly personal. 12-389 (La. App. 5 Cir. 2/21/13), 110 So.3d
1107 (La. Ct. App. 2013); see also In re Cajun Elec. Power Co-Op., Inc., 230 B.R. 693, 707
(Bankr. M.D. La. 1999) (characterizing a contract for the purchase and sale of electricity as
“nothing more than commercial contracts between two sophisticated entities”).
Here, the HVAC service contract was not strictly personal to either Xcel or Supreme
Bright because it did not require a skill uniquely possessed by Xcel, nor was it intended for
Supreme Bright’s exclusive benefit. This service contract is not analogous to the contract with
the artist for a portrait. Lacking these features of a strictly personal contract, the HVAC contract
is most similar to the commercial supply contracts discussed in Lomark and In Re Cajun. Like a
gasoline or electricity supply contract, which requires one particular service, the HVAC contract
was for routine maintenance that could be performed by any number of qualified individuals.
Unlike the plaintiff in Bryan, who set himself out as an expert in a very specific, complex field,
Xcel is an air conditioning contracting company with many competitors offering identical
services in the area. 128 So.3d at 1264; R. Doc. 24 at 1. Further, in Bryan, the expert plaintiff
attempted to assign his rights and obligations to individuals that lacked equivalent qualifications.
Id. In contrast, Xcel challenges the assignment of the contract from one obligee to another, rather
than from one obligor to another.
Moreover, unlike the contract in Victorian v. Victorian which was strictly personal to
both parties because it was intended for the exclusive benefit of an individual who specifically
sought services from his brother alone, the HVAC contract in this case is a standard, commercial

contract. 411 So.2d at 478. The benefits of HVAC maintenance were not exclusively for the
benefit of Supreme Bright, but rather were for the benefit of the building. Therefore, it makes
sense that when the building was transferred, the parties would make arrangements to transfer
the service contract rights to the subsequent buyers of the property who needed a functioning air
conditioning system in order to operate the hotel.
b. Because the HVAC Service Contract Was Assignable, Plaintiff’s Claims Are
Not Barred By the Subsequent Purchaser Doctrine.
The subsequent purchaser doctrine holds that “an owner of property has no right or actual
interest in recovering from a third party for damage which was inflicted on the property before
his purchase, in the absence of an assignment or subrogation of rights belonging to the owner of
the property when the damage was inflicted.” Eagle Pipe and Supply, Inc. v. Amerada Hess
Corp. 2010-2267 (La. 10/25/11), 79 So.3d 246, 256-57 (La. 2011) (emphasis added). The
doctrine imagines that damage to property injures an owner’s real interest in that property,
creating a personal right to sue the offending tortfeasor. Guilbeau v. Hess Corporation, 854 F.3d
310, 312 (5th Cir. 2017). This personal right is not transferable without an assignment or
subrogation. Id.
Here, PHG is undeniably a subsequent purchaser of land. However, Plaintiff in this case
claims to have an assignment of the HVAC contractual rights from PHG, who acquired the
contractual rights via assignment from Supreme Bright. Xcel cites the subsequent purchaser rule
in an attempt to illustrate that absent an assignment from PHG (which they contend was
unavailable due to the strictly personal nature of the contract), Plaintiff, as a subsequent
purchaser of the hotel, has no cause of action against it for damages caused prior to their
ownership. R. Doc. 17-2 at 5. However, this argument is not persuasive because the contract is
not strictly personal. Thus, if Plaintiff is the lawful assignee of rights from a subsequent

purchaser, it can pursue a claim against Xcel.
c. Because Federal Rule of Civil Procedure 12(b)(6) Does Not Require the
Introduction of Evidence, Plaintiff’s Claims Do Not Fail Merely Because It
Did Not Include Proof of the Contractual Assignment in the Pleadings.
To withstand a 12(b)(6) motion to dismiss, Plaintiff must merely “allege facts that
support the elements of the cause of action in order to make out a valid claim.” City of Clinton,
Ark., 632 F.3d at 152 (citing Twombly, 550 U.S. at 555). The standard does not require the
demonstration of evidence. Rather, a motion to dismiss can only be granted if the complaint fails
to plead “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S.
at 570. A facially plausible claim is one that gives the court the opportunity to reasonably infer
that the defendant engaged in the alleged misconduct. Id. The complaint need not, however,
include precise evidence to support the allegations contained therein. These allegations must be
considered in the light most favorable to the non-moving party. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). Here, the assertion that Plaintiff had an assignment of contractual rights is a factual
allegation, not a legal conclusion. Therefore, when read on concert, Plaintiffs assertions in
paragraphs 25-26 of the Amended Complaint (R. Doc. 23) that the service contract was assigned
are sufficient to state a claim for breach of contract upon which relief may be granted.
V.

CONCLUSION
For the foregoing reasons, IT IS ORDERED that Motions to Dismiss filed by Xcel

Air Conditioning Services are hereby DENIED.

New Orleans, Louisiana, this 25 day of August, 2017.

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UNITED STATES DISTRICT JUDGE