SRC CONSTRUCTION CORP. OF MONROE v. ATLANTIC CITY HOUSING AUTHORITY et al

Filing 77

OPINION. Signed by Judge Joseph E. Irenas on 4/2/2013. (tf, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
SRC CONSTRUCTION CORP.
OF MONROE,
Plaintiff,

v.
ATLANTIC CITY HOUSING
AUTHORITY, et al.,
Defendants.

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HONORABLE JOSEPH E. IRENAS
CIVIL NO. 10-3461 (JEI/AMD)
OPINION

APPEARANCES:
CONDON & ASSOCIATES, PLLC
By: Brian K. Condon, Esq.
55 Old Turnpike Road, Suite 502
Nanuet, New York 10954
Counsel for Plaintiff SRC Construction Corp. of Monroe
PARKER McCAY PA
By: Dana B. Ostrovsky, Esq.
3 Greentree Centre, Suite 401
7001 Lincoln Drive West
P.O. Box 974
Marlton, New Jersey 08053
Counsel for Defendant Atlantic City Housing Authority
SUAREZ & SUAREZ
By: Joseph M. Suarez, Esq.
2016 Kennedy Blvd.
Jersey City, New Jersey 07305
Counsel for Defendant Lindemon, Winckelmann, Deupree,
Martin, Russell & Associates, P.C.

IRENAS, Senior District Judge:
In this diversity suit, the parties dispute who is responsible
for the extended delays that occurred during the construction of an
assisted living facility in Atlantic City, New Jersey, which
allegedly resulted in several million dollars in additional costs.
Defendant Lindenmon, Winckelmann, Deupree, Martin, Russell &
Associates, P.C. (“Lindemon”) presently moves for summary judgment,
asserting that all of Plaintiff’s claims against it are barred by New
Jersey’s economic loss doctrine.

For the reasons stated herein, the

Motion will be denied.

I.
The following facts are undisputed for the purposes of this
Motion.

In late 2001, Defendant Atlantic City Housing Authority

(“ACHA”) awarded a lump sump contract to Plaintiff SRC Construction
Corp. of Monroe (“SRC”) to build the John P. Whittington Senior
Living Center.

In April, 2002 ACHA and SRC entered into a contract

for the construction of the facility, whereby SRC would be the
general contractor for the project.

(Condon Cert. Ex. A)

This is mainly a suit between SRC and ACHA.

Against ACHA only,

SRC asserts claims of breach of contract, unjust enrichment, wrongful
termination of the contract and conversion.

Similarly, against SRC

only, ACHA asserts counterclaims of breach of contract, negligence,
intentional and negligent misrepresentation, and conversion.

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However, the instant Motion does not implicate the claims
between SRC and ACHA.

Rather, Defendant Lindemon, who was the

architect on the project-- and undisputedly had a contract with ACHA
(Condon Cert. Ex. B), but not SRC (Rosciszewski Cert. Ex. C)-- moves
for summary judgment on the two claims SRC asserts against it: (1)
breach of express and implied warranties (Count 2 of the Complaint),
and (2) negligence (Count 5).
Both claims are based on SRC’s allegations that Lindemon caused
significant construction delays by:
C

“fail[ing] to provide the necessary building permits
to
SRC
in
accordance
with
their
duties,
responsibilities, and obligations” (Compl. ¶ 29);

C

“submitt[ing] drawings on multiple occasions to the
Building Department that were deemed Non-Code
Compliant” (Compl. ¶ 118(i));

C

“fail[ing] to respond in a timely manner to
Plaintiff’s
multiple
requests
for
pertinent
information on numerous issues” (Compl. ¶ 118 (iii));
and

C

“repeatedly provid[ing] defective verbal approvals of
change orders to Plaintiff, only to have these change
orders rejected by [the Housing Authority] later”
(Compl. ¶ 118(iv)).

SRC alleges that the delays caused it to “incur additional
costs” associated with the project.

(Compl. ¶ 41)

It further

alleges that those costs, combined with the costs allegedly caused by
the Housing Authority through its delays and other actions, exceed $3
million.

(Compl. ¶ 89)

As stated previously, Lindemon moves for summary judgment

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asserting that SRC’s claims are barred by New Jersey’s economic loss
doctrine.

II.
“Under Rule 56(c), summary judgment is proper ‘if the
pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.’”

Celotex Corp. v.

Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)).
In deciding a motion for summary judgment, the Court must
construe the facts and inferences in a light most favorable to the
nonmoving party.

Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d

860, 864 (3d Cir. 1986).

“‘With respect to an issue on which the

nonmoving party bears the burden of proof, the burden on the moving
party may be discharged by ‘showing’—that is, pointing out to the
district court—that there is an absence of evidence to support the
nonmoving party’s case.’”

Conoshenti v. Pub. Serv. Elec. & Gas, 364

F.3d 135, 145-46 (3d Cir. 2004) (quoting Celotex, 477 U.S. at 325).
The role of the Court is not “to weigh the evidence and determine the
truth of the matter but to determine whether there is a genuine issue
for trial.”

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249

(1986).

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III.
The Court first addresses the negligence claim (Count 5 of the
Complaint) before turning to the breach of express and implied
warranty claims (Count 2 of the Complaint).

A.
The issue raised by Lindemon’s Motion is whether the economic
loss doctrine bars a plaintiff’s negligence claim when: (1) the
negligence claim is asserted against a defendant with whom the
plaintiff has a business relationship but no direct contractual
relationship; and (2) the plaintiff also asserts a related breach of
contract claim against another defendant.

The Court concludes the

economic loss doctrine does not bar the negligence claim.
As the New Jersey Supreme Court discussed in detail in Saltiel
v. GSI Consultants, Inc., the economic loss doctrine helps to
maintain the “critical” “distinctions between tort and contract
actions” by precluding a party’s “negligence action, in addition to a
contract action, unless the plaintiff can establish an independent
duty of care.”

170 N.J. 297, 310, 314 (2002).

The Court repeatedly

emphasized that the economic loss doctrine operates to bar tort
claims where a plaintiff “simply [seeks] to enhance the benefit of

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the bargain she contracted for.”

Id. at 315.1

In illustrating the operation of the economic loss doctrine,
Saltiel discussed several cases, two of which guide the Court’s
analysis in this case.
In New Mea Construction Corp. v. Harper, 203 N.J. Super. 486,
489 (App. Div. 1985)2, the plaintiff-builder (New Mea) sued the
defendant-homeowners (the Harpers) for breach of contract, seeking
“the balance of the contract payments.”

The Harpers asserted both a

breach of contract counterclaim and a counterclaim for “negligent and
careless workmanship.”

Id.

In denying the Harpers’ motion to amend

their complaint, the Appellate Division explained,
The crux of defendants’ counterclaim for negligence is
that
[New
Mea’s
principal]
Ashworth
negligently
supervised the construction of the premises. Defendants
are apparently claiming that Ashworth’s ‘negligent
supervision’ included use of materials that were not of
the quality mandated by the contract’s terms and other
unnecessary work. For instance, defendants claim that
the flooring and framing were done with lesser quality
material than specified in the contract. . . . [T]his
cause sounds basically in contract. The obligation to
use the material specified in the contract rather than
some lesser-grade material was clearly not an obligation
imposed by law. Merely nominally casting this cause of
action as one for negligent supervision does not alter
its nature. Moreover, the obligation to use specified
material could have been altered by an amendment to the
contract. . . . Given these factors and the understanding

1

See also Id. at 311 (“a buyer’s desire to enjoy the
benefit of his bargain is not an interest that tort law
traditionally protects”), 312 (“We emphasized that the plaintiffs
were attempting to seek the benefit of the bargain they made in
their agreement.”).
2

Discussed with approval in Saltiel, 170 N.J. at 310, 313.
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that the relationship between the parties is governed by
a lengthy and comprehensive contractual arrangement,
defendants’ counterclaim is more soundly based on
contract than on tort.
New Mea, 203 N.J. Super. at 494.
On the other hand, in Juliano v. Gaston, the Appellate Division
refused to apply the economic loss doctrine to the plaintiffhomeowners’ (the Julianos’) “negligent workmanship” claim against the
subcontractors who participated in the construction of the Julianos’
new home.

187 N.J. Super. 491, 493 (App. Div. 1982), cert. denied by

93 N.J. 318 (1983).

“There was no direct contractual relationship

between the parties.”

Saltiel, 170 N.J. at 312 (discussing Juliano).

The Appellate Division held that the Julianos’ “damages [for
replacement and repair of defective workmanship] are recoverable in
[a] negligence action.”

187 N.J. Super. at 497.

See generally

People Express Airlines, Inc. v. Consolidated Rail Corp., 100 N.J.
246, 249 (1985) (“a defendant’s negligent conduct that interferes
with a plaintiff’s business resulting in purely economic losses,
unaccompanied by property damage or personal injury, [can be]
compensable in tort.”).
The only meaningful distinction the Court discerns in these two
cases is the presence of a direct contractual relationship in New Mea
and the absence of a direct contractual relationship in Juliano.
Thus, while not explicitly stated in Saltiel, the New Jersey Supreme
Court’s discussion of the economic loss doctrine and the
juxtaposition of New Mea and Juliano suggests that the doctrine only
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applies to bar certain tort claims between parties to a contract.
Stated another way, the absence of a contract between a plaintiff and
defendant in a negligence suit precludes the application of the
economic loss doctrine.

The Court’s repeated emphasis that the

economic loss doctrine operates to prevent plaintiffs from resorting
to tort law in an “attempt[] to seek the benefit of the bargain they
made in their agreement,” Saltiel, 170 N.J. at 312, further supports
this conclusion.
Lindemon espouses a subtle extension of the economic loss
doctrine as stated in Saltiel.

Lindemon obviously agrees that the

doctrine operates to bar negligence claims between parties to a
contract (as in New Mea), but further concludes that the doctrine
also bars claims such as SRC’s claim against it, where SRC asserts a
related contract claim against another defendant, namely ACHA.
Lindemon essentially argues that SRC is attempting to seek the
benefit of its bargain with ACHA through a tort claim against
Lindemon, and that the economic loss doctrine should bar such tort
claim.
In support of its position, Lindemon submits Horizon Group of
New England, Inc. v. New Jersey Schools Construction Corp., 2011 WL
3687451 (App. Div. 2011), and a copy of a recent opinion from the Law
Division, Spectraserv, Inc. v. The Middlesex County Utilities

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Authority, et al., Docket No. L-3577-07 (Law. Div. Feb. 8, 2013).3
In both cases, the courts held that the economic loss doctrine barred
a plaintiff’s negligence claim even in the absence of a direct
contractual relationship between the plaintiff and defendants.
Moreover, both courts’ decisions seemed to turn on the finding that
the plaintiffs could have invoked contractual remedies in their
contract with another defendant in the case.

See Horizon Group, 2011

WL 3687451 at *6-7; Spectraserv, L-2577-07, at p. 33-35.4
However, Horizon Group and Spectraserv cannot be reconciled with
Juliano.5

Not only could the Julianos have sued the homebuilder with

whom they had a direct contract, they did sue the homebuilder in a
separate suit and obtained a judgment.
494-95.

Juliano, 187 N.J. Super. at

Yet the Appellate Division still held that the negligence

claims against the subcontractor could proceed.

Juliano is thus

analogous to this case, and undermines Lindemon’s attempt to extend

3

Spectraserv is not available on either Westlaw or Lexis.
Lindemon’s counsel represents a defendant in the case.
In addition to Horizon Group and Spectraserv, Lindemon also
relies on Dynalectric Co. v. Westinghouse Electric Corp., 803 F.
Supp. 985 (D.N.J. 1992). Dynalectric is distinguishable because:
(1) the parties’ contracts explicitly incorporated the terms of
the other contracts, Id. at 992; and (2) the parties were
simultaneously arbitrating the disputes that gave rise to the
claims at issue, therefore the Court stayed the case pending
arbitration without dismissing the negligence claim. Id. at 993.
4

See also Dynalectric, 803 F. Supp. at 991 (“The question
then becomes whether Dynalectric has another avenue of redress.”).
5

While both cases discuss Saltiel, neither case cites nor
discusses Juliano.
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the economic loss doctrine to this case.
Juliano, admittedly, is different from this case insofar as the
homebuilder was insolvent and therefore the court observed that the
judgment against the homebuilder would not likely be paid.
Super. at 495.

187 N.J.

But that fact does not appear to be integral to the

court’s holding, and in any event, the potential availability of an
additional route to relief for SRC in this case is not a persuasive
reason to bar its negligence claim.
The concept of the availability of an avenue of redress, as it
relates to the economic loss doctrine, originates with People Express.
There, the New Jersey Supreme Court justified its holding that a
plaintiff could recover purely economic damages in the absence of
physical harm (i.e., the economic loss doctrine did not apply) by
stating “we strive to ensure that the application of negligence
doctrine . . . does not unnecessarily or arbitrarily foreclose redress
based on formalisms or technicalisms.”

100 N.J. at 255.

See also

Conforti & Eisele, Inc. v. John C. Morris Assoc., 175 N.J. Super. 341,
342, 344 (Law. Div. 1980) (holding that a “design professional is
answerable in tort to a contractor who sustains economic damages as a
result of the [design professional’s] negligence in the absence of
privity of contract,” explaining that “to deny this plaintiff his day
in court would, in effect, be condoning a design professional’s right
to do his job negligently.”).
Leaving open an avenue of redress because no other exists is one
thing, but foreclosing an avenue of redress simply because another
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exists is quite another.

Even in the typical economic loss doctrine

case, such as New Mea, the reason for foreclosing a tort claim is not
simply because a contract claim exists, but rather, that the tort
claim is not really a tort claim at all; it is a contract claim in
tort claim clothing.

See 203 N.J. Super. at 494 (“Merely nominally

casting this cause of action as one for negligent supervision does
not alter its nature.”); see also Saltiel, 170 N.J. at 311 (“a
buyer’s desire to enjoy the benefit of his bargain is not an interest
that tort law traditionally protects”).

But where there is no direct

contractual relationship between the plaintiff and defendant,
frequently there can be no contract claim at all, and therefore any
tort claim asserted cannot possibly be a contract claim in tort
clothing.

Thus, the Court respectfully disagrees with the reasoning

of the cases cited by Lindemon to the extent that they rely upon the
availability of an alternate avenue of redress as a reason for barring
the tort claims.
Accordingly, the Court concludes that the New Jersey Supreme
Court would not extend the economic loss doctrine to bar SRC’s
negligence claim against Lindemon.

Lindemon’s Motion for Summary

Judgment as to Count 5 of the Complaint will be denied.

B.
Summary judgment for Lindemon will also be denied as to the
breach of express and implied warranties claims.
As to the breach of express warranty claim, the Court does not
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see how the economic loss doctrine could apply to such a claim
because it sounds in contract, not tort.

See Kvedar v. Shapiro, 98

N.J.L. 225, 228 (E. & A. 1922) (recognizing that a breach of warranty
claim sounds in contract, not tort); see generally Metropolitan Coal
Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946) (Learned Hand,
Circuit Judge) (“A warranty is an assurance by one party to a
contract of the existence of a fact upon which the other party may
rely.

It is intended precisely to relieve the promisee of any duty

to ascertain the fact for himself; it amounts to a promise to
indemnify the promisee for any loss if the fact warranted proves
untrue, for obviously the promisor cannot control what is already in
the past.”).6

As there is no contract between SRC and Lindemon,

there seems to be no basis for a breach of express warranty claim.
The basis for Plaintiff’s implied warranty claim is also
unclear.

Plaintiff has not articulated what type of implied

warranty, if any, might arise in the provision of services context
(as opposed to the sale of goods context).
While there may be independent grounds for granting summary
judgment to Lindemon on either of these claims, Lindemon has made no
such argument, and the Court will not sua sponte grant summary
judgment to Lindemon without briefing by both parties.

See Fed. R.

Civ. P. 56(f)(2) (A court must “giv[e] notice and a reasonable time

6

Lindemon itself recognizes that the economic loss doctrine
functions “as a limitation on recovery through tort based
theories.” (Moving Brief, p. 6)
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to respond” before granting summary judgment on “grounds not raised
by a party.”); see also Otis Elevator Co. v. George Washington Hotel
Corp., 27 F.3d 903, 910 (3d Cir. 1994) (“a district court may not
grant summary judgment sua sponte unless the court gives notice and
an opportunity to oppose summary judgment.”).
Accordingly, Lindemon’s Motion for Summary Judgment as to Count
2 of the Complaint will be denied.

IV.
For the reasons set forth above Lindemon’s Motion for Summary
Judgment will be denied in its entirety.

An appropriate Order

accompanies this Opinion.

April 2, 2013

s/ Joseph E. Irenas
JOSEPH E. IRENAS, S.U.S.D.J.

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