Severn Peanut Co., Inc. et al v. Industrial Fumigant Co. et al

Filing 26

ORDER denying 13 Motion to Dismiss. Signed by US District Judge Terrence W. Boyle on 11/14/2011. (Sawyer, D.)

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

NORTHERN DIVISION

NO.2:II-CV-I4-BO

SEVERN PEANUT CO., INC. AND
MEHERRIN AGRICULTURE &
CHEMICAL CO.,
Plaintiffs,
v.

INDUSTRIAL FUMIGANT CO. AND
ROLLINS, INC.,
Defendants.

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ORDER

This matter is before the Court on Defendants Industrial Fumigant Co. ("IFC") and
Rollins' Motion to Dismiss [DE 13]. Plaintiffs Severn Peanut Co. ("Severn") and Meherrin
Agriculture & Chemical Co. ("Meherrin") filed their complaint on April 8, 2011, asserting
claims for negligence, negligence per se, and breach of contract as a result of an explosion in
Severn's peanut storage dome ("Dome") 1, Defendants seek to dismiss these claims on the
grounds that (1) the economic loss doctrine precludes Plaintiffs' claims for negligence and
negligence per se and (2) the damages Plaintiffs seek are excluded by the contract's express
terms [DE 13]. Defendants filed the instant Motion on May 23,2011, and Plaintiffs responded
on July 11. A hearing was held before the undersigned on October 26 in Raleigh, North
Carolina. The Court has jurisdiction under 28 U.S.c. § 1332 and the motion is ripe for
adjudication. Because the jurisdictional basis of this case is diversity of citizenship, this Court
applies North Carolina substantive law as would a North Carolina state court. See Colgan Air,
Severn is a wholly-owned subsidiary of Meherrin. Plaintiffs allege that IFC, an
applicator of commercial pest-control fumigation products, acted at the direction of Rollins, its
parent company.
I

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Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir. 2007).

BACKGROUND

On April 20, 2009, IFC and Severn entered into a contract for IFC to apply
fumigant in the form of Fumitoxin (aluminum phosphide tablets) into Severn's Dome. The
Dome's volume is 1,976,503 cubic feet, and the fumigant was to target flour beetles and Indian­
meal moths. The parties agreed on a price of $8,604 per fumigation. On August 4, IFC applied
the fumigant and sealed the Dome. Seven days later, Severn discovered smoke coming from the
Dome and notified IFC. Rollins had Piedmont Risk Management visit the site and assess the
situation. Severn and Meherrin allege that the representative said that he was retained by Rollins
and that Rollins would take responsibility for suppressing the fire. Rollins then hired Williams
Fire and Hazard Control to supervise and coordinate fire fighting efforts. Rollins and Williams
inserted dry ice into the Dome. On August 29, there was an explosion in the Dome and the
Dome and peanuts inside sustained severe damage. Rollins and Williams sprayed water and
foam to extinguish the fire. Severn alleges that it sustained $20 million in damages as a result of
the fire, which it attributes to IFC/Rollins' improper use of the pesticide, Fumitoxin.
As a result of the explosion, Plaintiffs filed a complaint against IFC and Rollins, asserting
claims for negligence, negligence per se, and breach of contract. Defendants seek to dismiss
these claims on the grounds that (1) the economic loss doctrine precludes Plaintiffs' claims for
negligence and negligence per se and (2) the damages Plaintiffs seek are excluded by the
contract's express terms.
DISCUSSION
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) will succeed if a
plaintiff fails to establish a "plausible" claim for relief. Bell Atlantic Corp. v. Twombly, 550 U. S.

544, 556 (2007); Ashcroft v. Iqbal, 556 U.S. _ , 129 S.Ct. 1937, 1949 (2009). In analyzing a
motion to dismiss, the complaint is construed in the light most favorable to Plaintiffs and its
allegations are taken as true. Republican Party ofN. C. v. Martin, 980 F.2d 943, 952 (4th Cir.
1992). For the following reasons, Plaintiffs in this case have asserted facts sufficient to
withstand Defendants' Motion to Dismiss.
I. North Carolina's Economic Loss Doctrine

Defendants first allege that the negligence and negligence per se claims are foreclosed by
operation of the economic loss doctrine. That doctrine states that, ordinarily, a breach of contract
does not give rise to a tort action by the promisee against the promisor. N. C. State Ports Auth. v.
LloydA. Fry Roofing Co., 240 S.E.2d 345, 351 (N.C. 1978) The doctrine relies on the notion,

derived from freedom of contract, that "the parties to the contract either contemplated or should
have contemplated these dangers in allocating the risk of loss. Palmetto Linen Serv., Inc. v.
u.N.X, Inc., 205 F.3d 126, 130 (4th Cir. 2000) (applying South Carolina law). In other words,

"business entities must protect their commercial interests up front through the medium of
contract." Id.
This doctrine, however, is not without limitation. In Ports Authority, the seminal North
Carolina case establishing the economic loss doctrine, the Supreme Court of North Carolina also
recognized its four exceptions. 2 Ports Auth., 240 S.E.2d at 351. The economic loss doctrine

2Although

some courts have held that North Carolina's economic loss doctrine is limited
to products liability cases and has no application to services contracts, see, e.g., Ellis-Don Const.
Inc. v. HKS, Inc., 353 F. Supp.2d 603, 606 (M.D.N.C. 2004), Ports Authority itself, the case
which establishes the doctrine in the state, applies the economic loss bar to a roofing contractor
in a suit seeking recovery for negligent roofing work under a services contract. Ports Auth., 240
S.E.2d at 351. Even if the economic loss doctrine does not apply to services contracts, the
resulting ruling on this Motion would not change.

does not bar recovery in tort when: (1) injury or damage is to a person or property of someone
other than the promisee; (2) injury or damage is to property of the promisee other than that which
was the subject of the contract; (3) the promisor was charged by law, as a matter of public policy,
with the duty to use care in the safeguarding of the property from harm; or (4) there was a willful
injury to or conversion of the property of the promisee. Id.

In this case, the facts closely parallel those in a case the Ports Authority court viewed as
squarely within the second exception to the economic loss doctrine. See Firemen's Mutual
Insurance Co. v. High Point Sprinkler Co., 146 S.E.2d 53 (N.c. 1966). In Firemen's Mutual, the
insurer of a warehouse facility sued a sprinkler installation firm for negligence in converting the
warehouse's wet system to a dry system, which resulted in a burst pipe and water damage to
property in the warehouse. Id. at 56. The Ports Authority court noted that, because the negligent
installation of the sprinkler system caused damage to the promisee's merchandise, the promisor
could be held liable in tort for the damages. Similarly, here, the promisor's negligent application
of Fumitoxin allegedly caused damage to the promisee's other property, namely the peanuts and
Dome. Therefore, this case involves alleged damages that are not subject to operation of North
Carolina's economic loss doctrine, and Plaintiffs' negligence and negligence per se claims
survive this motion to dismiss. See also Jewell v. Price, 142 S.E.2d 1,4 (N.C. 1965) (sufficient
evidence of negligence for damage to a promisee's home in the execution of a contract for the
installation of a furnace).
II. Contractual Exclusions

In the alternative, Defendants argue that the damages Plaintiffs seek on their breach of
contract claim are expressly excluded by the terms of the contract. Defendants point to two
clauses in the contract between Severn and IFC for support. The first states that "IFC shall in no

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event be liable for consequential damages for breach, if any, of...limited warranties, or resulting
from the performances of its services and use of any products pursuant hereto." The second
states that "the amounts payable by [Severn] are not sufficient to warrant IFC assuming any risk
of incidental or consequential damages such as [Severn's] property, product, equipment,
downtime, or loss of business." Defendants are correct to note that even companies in an
"extensively regulated" industry are permitted to limit their liability by contract. See Blaylock
Grading Co., LLP v. Smith, 658 S.E.2d 680, 683 (N.c. Ct. App. 2008). However, the damages

claimed by Plaintiffs for loss of their peanuts and Dome are, at least arguably, direct damages in
this case. Although Plaintiffs are contractually barred from proceeding on claims for
consequential damages on their breach ofcontract claim, at this stage they are not barred from
pursuing their claims for direct damages.
CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss [DE 13] is DENIED.
SO ORDERED. This

L!i day of November, 2011.
TERRENCE W. BOYLE
UNITED STATES DISTRI