H&M Company, Inc. v. Technical Heat Transfer Services, Inc. et al

Filing 36

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 3/30/2015. (kw2s, Deputy Clerk)

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND

II&M COMPANY, INC.,
Plaintiff,

v.
Civil Action No. TDC-14-I518

TECHNICAL HEAT TRANSFER
SERVICES, INC. and
ATLANTIS EQUIPMENT CORPORATION,
Defendants.

MEMORANDUM

OPINION

This matter is before the Court on separate Motions to Dismiss filed by Defendant
Technical

Heat Transfer

Services, Inc. ("THTS"),

ECF No. 10, and Atlantis

Equipment

Corporation ("Atlantis"), ECF No. 31. The issue before the Court is whether the Complaint
sufficiently states claims for breach of implied warranty. breach of express warranty, negligence,
and negligent misrepresentation arising from the design and provision of heat exchanger
equipment that failed to perform as promised. The Court has reviewed the Complaint and briefs
and has determined that no hearing is warranted.

See Local Rule 105.6 (D. Md. 2014).

For the

following reasons, the Motions to Dismiss are GRANTED IN PART and DENIED IN PART.
BACKGROUND
Plaintiff H&M Company, Inc. ("H&M"), a general contractor incorporated in Tennessee,
contrdcted with Mirant Power to provide certain heat exchanger equipment (the "Equipment")
for installation at a power plant in Newburg, Maryland (the "Project"). CompI. ~
No.1.

1, 7, ECF

H&M then entered into a subcontract with T.J. O'Brien Engineering Company ("TJO"),

under which TJO agreed to design, supply, deliver, warrant, and guarantee the Equipment. [d.

I

~ 8. H&M alleges that "[uJpon information and belief,

no subcontrdcted

with THTS to design,

supply, deliver, warrant and guarantee the Equipment," and that, in tum, "THTS contnlcted with
Atlantis to design, supply, deliver, warrant, and guanmtee the Equipment."
THTS and Atlantis are New York corporations.

ld.'

9-10.

Both

Id. '.'12-3.

H&M also alleges that THTS "received and reviewed the contract specifications for the
Equipment" and "provided and designated" them to Atlantis, and that Atlantis "received and
reviewed the contract specifications and then designed and manufactured the Equipment for use
on the Project." !d.'1

11-13. H&M alleges that THTS and Atlantis (collectively, "Defendants")

then "prepared product data establishing the specifications for the Equipment" and "represented
to Plaintiff and others that the Equipment, among other things, was suitable for the Project,
complied with the applicable specifications for the Project, was properly designed, and would
provide the required level of cooling capacity." Jd'i

14-15. H&M alleges that it "relied on the

representations of Defendants" that the Equipment complied with the specifications.

Id. '116.

After it was installed, the Equipment failed. H&M alleges that the Equipment "failed to
perform as suitable heat exchanger equipment for the Project, failed to comply with the Project
specifications, and failed to perform as represented by Defendants," and that in the performance
of their duties, Defendants "should have discovered the defect by exercising reasonable care:'
Id .• ~~ 18-19. H&M further alleges that representatives of Atlantis visited the Project to review
the Equipment, but did not provide an adequate remedy for its failure. Id.' 20. As a result of
the failure, H&M alleges that it incurred additional costs in investigating and evaluating the
defective Equipment, as well as in procuring and installing suitable replacement equipment,
which resulted in damages in excess of $500,000. Id. ~~ 22-23.

2

On May 7, 2014, H&M filed the instant action alleging claims against Defendants for
breach of implied warranty of fitness for a particular purpose (Count I), breach of express
warranty (Count II), professional negligence (Count Ill), and negligent misrepresentation (Count
IV)' ECF No. I. On June 16.2014, TilTS filed its Motion to Dismiss. ECF No. 10. The Court
subsequently granted various consent motions by the parties requesting that the case be stayed
during the parties' attempts to resolve the dispute through mediation. See ECF Nos. 25, 27, 29.
The stay expired on January 18,2015, see ECF No. 29, and Atlantis filed its Motion to Dismiss
on January 21, 2015, ECF No. 31. Both Motions are now ripe for adjudication.
DISCUSSION
I. Legal Standard
A court must deny a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss for
failure to state a claim where the complaint alleges enough facts to state a plausible claim for
relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). A claim is plausible when "the plaintiff pleads factual content that allows the Court
to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal,
556 U.S. at 678. In assessing whether this standard has been met, the Court must examine the
complaint as a whole, consider the factual allegations in the complaint as true, and construe the
factual allegations in the light most favorable to the plaintifI. Albright v. Oliver, 510 U.S. 266,
268 (1994); Lambeth v. Ed. ofComm'rs of Davidson Cnty., 407 F.3d 266, 268 (4th Cir. 2005)
(citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

Legal conclusions or conclusory

statements do not suffice and are not entitled to the assumption of truth. Iqbal, 556 U.S. at 678.

It appears that H&M separately pursued its claims against non-party subcontractor TJO in
arbitration. See Atlantis Mot. Dismiss at 3, ECF No. 31-1.
I

3

II. Choice of Law
Federal courts sitting in diversity apply the law of the state in which the court is located,
including the forum state's choice oflaw rules. Colgan Air, Inc. v. Raytheon Aircraft Co., 507
F.3d 270, 275 (4th Cir. 2007). With regard to contract claims, unless the parties have chosen a
different law, Maryland's

Uniform Commercial Code governs claims for breach of warranty

arising out of "'transactions bearing an appropriate relation to this State." Md. Code Ann., Com.
Law ~ 1.301(b) (West 2015). Although Defendants note that the Court could, in its discrctiun,
decide to apply the law of New York (Defendants' place of incorporation) or Tennessee (H&M's
place of incorporation), the parties appear to agree that the application of Maryland law to the
contract claims is proper. Among the factors to be considered in determining whether a breach
of warranty claim bears an "appropriate relation" to the state are: the residence of the parties, the
place of purchase, the place of performance,

where the defective product was stored and

maintained, and the place of injury. See Thornton v. Cessna Aircraft Co., 886 F.2d 85, 90 (4th
Cir. 1989) (interpreting
Commercial Code).

identical "appropriate

relation"

language

in the South Carolina

Although the parties in this case are incorporated in different states other

than Maryland, the Equipment was installed in Maryland, the alleged defect in the Equipment
arose in Maryland, and H&M's economic loss occurred in Maryland. Thus, the Court concludes
that Maryland law applies to the contract claims.
Maryland
misrepresentation.

law

also

applies

to

the

tort

claims

of

negligence

and

negligent

Under Maryland law, the tort doctrine of lex loci delicti provides that the

substantive law to be applied in a tort case is that of the state in which the \\'TOngoccurred, in this
case, Maryland. Philip Morris, Inc. v. Angeletti, 752 A.2d 200, 230 (Md. 2000).

4

HI. Breach oflmplied \Varranty of Fitness fur Particular Use
H&M sufficiently states a claim for breach of the implied warranty of fitness for a
particular use. To establish such a claim, the plaintiff must show that: (1) the seller had reason to
know the plaintiffs

particular purpose for which goods are required; (2) the seller had reason to

know that the plaintiff was relying on the seller's skill or judgment to furnish appropriate goods;
and (3) the plaintiff, in fact, relied on the seller's skill and judgment.

S 2-315;

Md. Code Ann., Com. Law

Ford Motor Co. v. Gen. Accident Ins. Co., 779 A.2d 362, 374-75 (Md. 2001). Here, the

Complaint alleges that Defendants received and reviewed the contract specifications

for the

Equipment, prepared product data establishing the specifications for the Equipment, and then
represented to H&M and others that the Equipment was suitable for the Project. Compl.
15.

H&M also alleges that it relied on these representations

Equipment was subsequently installed.

Id.

~ 11-

by Defendants, and that the

16.17. Thus, H&M adequately alleges that there

was an implied warranty of fitness for particular use.

The Complaint

also alleges that

Defendants breached the warranty by providing Equipment that did not meet the Project
specifications, that H&M provided notice of the breach within a reasonable time after discovcry,2
and that H&M suffered damages as a result of the breach.

Id. ~\ 31-33. The Court therefore

concludes that H&M has pleaded sufficient factual allegations to state a claim for breach of the
implied warranty.
Defendants argue that Count I fails because contractual privity is a required element of a
claim for breach of the implied warranty of fitness for particular use. and H&M was not in

Atlantis argues that H&M was required to provide more specific factual allegations regarding
when and how H&M notified Defendants of the alleged breach. See Atlantis's Mot. Dismiss
at 7.
However. such heightened pleading is not required under Federal Rule of Civil
Procedure 8. H&M's allegation that it provided reasonable notice is sufficient at the Rule
12(b)(6) stage.
2

5

contractual privity with Defendants. THTS's Mot. Dismiss at 5. Although Maryland has
expressly waived the vertical privity requirement for a claim of breach of the implied warranty of
merchantability, Md. Code Ann., Com. Law ~ 2-314(1)(b), it has not dune so for implied
warranty of fitness for a particular purpose, id. ~ 2-315, which is the cause of action at issue here.
See Pulle Home Corp. v. Parex, Inc., 923 A.2d 971, 1000 (Md. 2007); cf Copiers Typewriters
Calculators. Inc. v. Toshiba Corp., 576 F. Supp. 312, 323 (D. Md. 1983) (concluding that the

statutory provision eliminating the privity requirement for claims of breach of an implied
warranty of merchantability does not apply beyond that particular warranty). However, in Ford
Motor Co. v. General Accident Insurance Co., 779 A,2d 362 (Md. 2001), the Maryland Court of

Appeals concluded that for a claim for breach of implied warranty of fitness for a particular
purpose. "the plaintiff only needs to prove that the buyer had a particular purpose known to
seller, and ...

privity itself is not a required element that must be shown independently." Id.

at 345. As discussed above, H&M alleges Defendants reviewed the contract specifications and
represented to H&M that the Equipment met the specifications and was suitable for the Project.
Thus, even without an allegation of privity, the Complaint sufficiently states a claim for breach
of implied warranty of fitness for particular use.
Defendants also argue that H&M incorrectly alleges that they made representations to
H&M regarding the suitability of the Equipment for the Project. THTS states that H&M "did not
know of the identity or even the existence of THTS" until after the dispute arose, and that THTS
never made representations guaranteeing that the Project would meet a particular purpose.
THTS's Reply, at 1-2. Likewise, Atlantis argues that there was never any contact between H&M
and Atlantis prior to the Equipment's failure, so it was impossible for H&M to have relied on
any representations Atlantis is alleged to have made. Atlantis's Mot. Dismiss at 7. While these

6

assertions may prove to be true, they are questions of fact that are inappropriate for consideration
at the Rule 12(b)(6) stage. As discussed above, taking the factual allegations in the Complaint as
true and drawing all inferences in H&M's favor, the Court finds a plausible claim for breach of
the implied warranty of fitness for particular use.
IV. Breach of Express Warranty
Under Maryland law, an express warranty exists where there is an "affirmation of fact or
promise made by the seller to the buyer which relates to the goods and becomes part of the basis
of the bargain." Md. Code Ann., Com. Law ~ 2-313(1 lea). H&M's claim for breach of express
warranty will be dismissed because privity is a required element for such a claim. See Copiers
Typewriters, 576 F. Supp. at 322-23 (finding that under Maryland law, when no personal injury
is alleged, privity is a required element for an express warranty claim); see also Pulte, 923 A.2d
at 1000 (noting Maryland's general rule that contractual privity is required for breach of express
warranty actions absent personal injury). Based on the allegations in the Complaint. there is no
contractual privity between H&M and Defendants.
was

no that, in tum,

H&M's contract was solely with TJO. and it

contracted with THTS, which contracted with Atlantis. See Compl.

~ 8-

10. Therefore, the Complaint fails to state a claim for breach of express warranty.
H&M argues that its express warranty claim should not be dismissed because, if given
the benefit of discovery, H&M may be able to show that this case falls under one of Maryland's
recognized exceptions

to privity, including for third-party beneficiaries,

equitable estoppel,

assignment, agency relationships, or successors in interest. Opp. THTS's Mot. Dismiss at 13-15
& 0.9.

'Ibe Complaint, however, does not allege that H&M was a third-party beneficiary,

assignee, agent, or successor in interest to the contract between TJO and THTS, or to the contract

7

bew.een THTS and Atlantis.

Nor does it contain any factual allegations from which the Court

might infer the above.
Likewise, there are no allegations to support any possible estoppel theory at this stage.
Maryland law appears to recognize that a narrow exception to the privity requirement may be
made in express warranty cases where a defendant behaved in such a way that the plaintiff was
justified in believing that the defendant was the actual seller, or that it could rely on an express
warranty because the defendant provided warranty services to the plaintiff, despite the lack of
privity. For example, in Wood Products, Inc. v. CMI Corp., 651 F, Supp. 641 (D. Md, 1986), the
parties were found to be in contractual privity, but the court found that, even if they were not, the
defendant would have been estopped from denying privity both because the defendant played a
seller-like role during the negotiations, and because it had "'tricked [the plaintiff] into believing
that [it] was entering into a contract with [the defendant]," thus engaging in "unconscionable"
conduct that was "'precisely" the reason the doctrine of estoppel was created.
Addressograph-Mult/graph

Id. at 649-50. In

Corp. v. link, 329 A.2d 28 (Md. 1974), the court held that the

defendant was estopped from asserting the lack of privity as a defense because the defendant had
made various service calls without charge over the course of a year and a half, leading the
plaintifTto believe that it had, and could rely on, an express warranty. Id. at 31.
Here, the Complaint does not allege any facts from which the Court could similarly infer
that H&M either believed Defendants to be parties with whom they were contracting, or that
Defendants provided H&M with warranty services, despite the lack ofpnvity.
facts asserted in a supplemental affidavit to its Opposition to TilTS's

H&M argues that
Motion to Dismiss,

Campbell Aff., ECF. No. 14-1, could provide additional support for such an inference, and
hypothesizes that it would uncover even further information in discovery, but on a Rule 12(b)(6)

8

motion, the Court is limited to examining the facts alleged within the four comers of the
Complaint. See Fed. R. Civ. P. 12(d). The Court therefore dismisses H&M's claim for breach of
express warranty.

The claim is dismissed without prejudice in order to account for the

possibility that H&M may later seek leave to pursue the claim on the basis of information
uncovered during discovery that supports one of the exceptions to the privity requirement.
V. Professional Negligence

H&M also asserts a claim for I'professional negligence") based on Defendants' alleged
failure to exercise reasonable care in providing engineering and other specialized services in
reviewing the specifications and designing the Equipment. CompI.

'i 7.

To state a claim for

negligence under Maryland law, a plaintiff must plead: (1) the existence of a duty to protect the
plaintiff from injury; (2) that the defendant breached that duty; (3) that the plaintiff suffered
actual injury or loss; and (4) that the loss or injury proximately resulted from the defendant's
breach. Lloyd v. Gen. Motors Corp., 916 A.2d 257, 270-71 (Md. 2007) (internal citation and
quotation marks omitted). Defendants argue that H&M's negligence claim should be dismissed
•

because the Complaint fails to establish that Defendants owed H&M an independent duty of
care.
Whether a legal duty exists between parties is a question of law. JOO /nv. Ltd. P'ship v.
Columbia Town Or. Title Co., 60 A3d 1,9 (Md. 2013). Although there is no precise formula

In its Opposition to THTS's Motion to Dismiss, H&M states that the elements for professional
negligence are the same as those for a general negligence claim, Opp. THTS's Mot. Dismiss at
17. It appears that H&M uses the term "professional negligence" to reference the allegation that
Defendants were negligent in the rendering of their professional services, and not because it
intends to bring, for example, a malpractice claim under 9 3-2C-OI of the Courts and Judicial
Proceedings Article of the Maryland Code for a "licensed professional's alleged negligent act or
omission in rendering professional services, within the scope of the professional's license,
permit, or certificate." Md. Code Ann., Cts. & Jud. Proc. 9 3-2C-0I(b). In their Motions,
Defendants also treat Count III as a common law tort claim for negligence. Thus, the Court will
also do so here.

3

9

for detennining the existence of a tort duty between parties, Maryland courts consider as key
factors (1) the nature of the harm likely to result from a failure to exercise due care and (2) the
relationship between the parties. Jacques v. FirSI Nal'/ Banko/Md.,

515 A.2d 756, 760-61 (Md.

1985); 100 Inv. Lid., 60 A,3d at 10-11. In cases where the failure to exercise due care creates a
risk of economic loss only, "courts have generally required an intimate nexus between the
parties," which "is satisfied by contractual privity or its equivalent."

Jacques, 515 A.2d at 760-

61. In this case, the harm was economic in nature, but, as discussed above, the parties were not
in contractual privity. Therefore, the Court must examine the parties' relationship to determine
whether the Complaint plausibly alleges that an equivalent intimate nexus existed between H&M
and Defendants to establish a basis for tort liability.
To assess whether such an intimate nexus exists, Maryland courts consider whether (1)
the alleged tortfeasor was aware that its work was to be used for a particular purpose; (2) there
was a known party that was intended to rely upon that work; and (3) there was some conduct on
the part, of the alleged tortfeasor linking it to the party showing that it understood that party's
reliance upon its work. 100 Inv. Ltd., 60 AJd at 15-16; Wa/pert. Smul/lan & Blumenlha/. P.A. v.
Kalz, 762 A.2d 582, 606-09 (Md. 2000). In Wa/perl, the Maryland Court of Appeals coosidcred
whether an accounting finn owed a duty of care to a third party with whom it had no contractual
relationship.

Id. at 583.

There, an accounting firm prepared an audit report in a negligent

manner, resulting in economic loss to a third party which relied upon the report. Id. at 583.84.
The court concluded that summary judgment challenging the existence of a tort duty was
properly denied when there was evidence that the accounting firm was aware that its report
would be used by the third party for a particular purpose, that the third party relied upon it, and

10

the accounting firm was aware of that reliance based on the fact that it directly provided a copy
of its audit to the third party. Id. at 608-09.
In this case, the Complaint similarly alleges that Defendants received and reviewed the
contract specifications

for the Equipment, that Atlantis designed the Equipment according to

those

and that Defendants

specifications,

then prepared

product

data

establishing

the

specifications for the Equipment and represented to H&M that the Equipment would provide the
required level of cooling capacity. Compl.

'i~
11-15.

Based on these allegations, it is plausible

that, as in Walpert, Defendants knew that its professional services would be used for a particular
purpose, H&M relied on those services, and Defendants knew that H&M would rely on their
services

based on their exchange

Defendants made to H&M.

of the Projects

specifications

and the representations

The Court therefore concludes that H&M sufficiently alleges the

existence of an intimate nexus, even in the absence of contractual privity. See Walperl, 762 A.2d
at 608-09; Superior Bank, F.SB. v. Tand.em Nal.' Morlg. Inc., 197 F. Supp. 2d 298, 320-21 (D.
Md. 2000) (finding the duty element properly pleaded in a negligent misrepresentation

claim

where parties lacked contractual privity but the bank alleged that defendant mortgage brokers
had reason to know that it would rely on false information defendants provided about various
mortgage loans); see also Villaxe of Cross Keys, Inc. v. U.S. Gypsum Co., 556 A.2d 1126, 113435 (Md. 1989) (stating that a manufacturer could potentially owe a tort duty to developers and
engineers who may be expected to rely upon erroneous information in its publication about its
product, but finding no duty in this specific case because the plaintiff had not actually used the
manufacturer's product).
Defendants take issue \'lith H&M's allegation that "Defendants owed a duty to exercise
that degree of care and skill exercised by reasonable and competent engineers in the design and

II

compliance review of the Equipment." Compl. 42. Specifically, Defendants argue that THTS
is not, in fact, a provider of engineering services, that the Complaint fails to allege that either
Defendant offered professional engineering services, and that, therefore, the Complaint lacks
"any facts justifying any reasonable reliance by Plaintiff upon the status of Atlantis and TilTS as
all professional engineer." Atlantis's Mot. Dismiss at 10-11; TilTS's Mot. Dismiss at 11-12.
Maryland courts have considered the nature of the defendant's business to be an "additional
factor relevant to the determination of whether to recognize the existence of a tort duty" and
generally recognize that "in those occupations requiring peculiar skill, a tort duty to act with
reasonable care will be imposed on those who hold themselves out as possessing the requisite
skill." Jacques, 515 A.2d at 763 (emphasis added). But the "intimate nexus" analysis used to
determine whether there is a duty of care in cases involving economic loss does not require a
finding that the defendant had a certain professional expertise. See JOOlnv. Ltd., 60 A.3d at 1516; Jacques, 515 A.2d at 759-61, 763. As discussed above, H&M has sufficiently alleged that
Defendants knew of the particular purpose for their services, were aware that H&M would rely
on their skills and expertise in providing those services that were responsive to the Project's
needs, and that H&M did so rely. Regardless of whether Defendants' skills and expertise would
qualify as engineering skills, the Complaint adequately alleges that Defendants owed a duty of
care to H&M in reviewing the Project specifications and designing and preparing the Equipment.
Thus, H&M properly alleges a tort duty, and the motions to dismiss the negligence claim are
denied.
VI. Negligent Misrepresentation

The elements of a negligent misrepresentation claim are that (1) the defendant, owing a
duty to the plaintiff, negligently asserts a false statement, (2) intending for the statement to be

12

acted upon, (3) and knowing the plaintiff will rely on the statement; and that (4) the plaintiff
justifiably

takes action in reliance and (5) suffers damage as a proximate cause.

Chevrolet, Inc. v. Seney, 439 A.2d 534, 539 (Md. 1982).

Martens

H&M alleges that Defendants

negligently made false representations regarding the suitability of the Equipment., knowing that
H&M would rely on those statements, and that H&M relied on those statements and suffered
economic damages.

Compl.'~

15-23,47-52.

As with Count III, Defendants' only argument is

that the claim should be dismissed because H&M fails to properly allege the existence of a tort
duty.

However, as discussed in the previous section, the Court finds the element of duty

properly pleaded. See Wolpert, 762 A.2d at 648 (noting that the plaintiff asserted claims ofhoth
negligence and negligent misrepresentation); Superior Bank, 197 F. Supp. 2d at 320-21 (finding
the duty element

properly

pleaded in a negligent

misrepresentation

claim).

Therefore,

Defendants' motions to dismiss Count IV are denied.
CONCLUSION
For the foregoing reasons, Defendants' Motions to Dismiss are DENIED as to the breach
of implied warranty of fitness for a particular use claim (Count 1), negligence claim (Count III),
and negligent misrepresentation
warranty claim (Count II).

claim (Count IV), and GRANTED as to the breach of express

.Ibe Complaint's

breach of express warrant claim (Count II) is

DISMISSED without prejudice. A separate Order follows.

Date: March 30, 2015
THEODORE D. C
A
United States District u ge

13