Salt Lake City Corporation et al v. ERM WEST et al

Filing 107

MEMORANDUM DECISION granting #88 Motion to Dismiss for Failure to State a Claim. Signed by Judge Ted Stewart on 10/30/2013. (asp)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

SALT LAKE CITY CORPORATION, a Utah
municipal corporation; BP PRODUCTS
NORTH AMERICA INC., a Maryland
corporation; and CHEVRON U.S.A. INC., a
Pennsylvania corporation,
Plaintiffs,

MEMORANDUM DECISION AND
ORDER GRANTING ERM’S
MOTION TO DISMISS

vs.

ERM-WEST, INC., a California corporation;
COMPASS ENVIRONMENTAL, INC., a
Delaware corporation; and WRS
INFRASTRUCTURE AND
ENVIRONMENT, INC., a North Carolina
corporation, d/b/a/ WRSCOMPASS, INC.,

Case No. 2:11-CV-1174 TS

Defendants.

This matter is before the Court on Defendant ERM-West, Inc.’s (“ERM”) Motion to
Dismiss.1 The Court heard oral argument on ERM’s Motion on October 24, 2013. Having

1

Docket No. 88.
1

considered the arguments raised at oral argument, reviewed the materials submitted by the
parties, and being otherwise fully informed, the Court will grant ERM’s Motion.
I. BACKGROUND
This dispute arises from the environmental remediation of hydrocarbon-impacted
sediments from a section of the Northwest Oil Drain (“NWOD”) Canal. On August 12, 2003,
Plaintiffs Salt Lake City Corporation (the “City”), BP Products North America, Inc. (“BP”), and
Chevron USA, Inc. (“Chevron”) (referred to collectively as “Plaintiffs”) entered into an
Administrative Order on Consent (the “AOC”) with the Environmental Protection Agency
(“EPA”) to conduct remediation on the NWOD Canal. Plaintiffs formed an association called
the Northwest Oil Drain Working Group (the “Working Group”) to carry out this obligation.
Pursuant to the AOC, Plaintiffs were required to effect complete physical removal of
hydrocarbon-impacted sediments from the NWOD canal. The AOC also specifically required
that the Working Group designate a project coordinator to be responsible for administration of
the actions required under the AOC. On August 23, 2003, the City entered into a Professional
Services Agreement (the “PSA”) with ERM on behalf of the Working Group.
In oral argument, Plaintiffs represented that the PSA was entered into prior to the AOC.
The timing of the execution of the PSA is not readily ascertainable from the documents attached
as exhibits to Plaintiffs’ Complaint. However, the allegations of Plaintiffs’ Second Amended
Complaint provide that the AOC was entered into on August 12, 2003, and the PSA was entered
into on August 23, 2003. For purposes of this Motion, the Court will accept as true the
allegations of Plaintiffs’ Second Amended Complaint.
2

According to the Recitals of the PSA, ERM was to: (1) “provide the [Working Group]
Project Management Services to oversee the construction phase of the Northwest Oil Drain clean
up;” (2) “handle all ‘daily duties’ that are required consistent with the remedial alternative
selected;” and (3) “assist the Working Group in preparing submittals required in the AOC.”2
Pursuant to the PSA, ERM’s services were to “be performed in accordance with the best
professional judgment and skill.”3
ERM was to assist the Working Group in selecting a remediation contractor, including
developing project technical specifications, construction bid documents, and managing the
bidding process.4 As Project Manager, ERM was also required to develop a work plan to
accomplish the complete removal of hydrocarbon-impacted sediments that included, among other
documents, a Quality Assurance Project Plan and Sampling and Analysis Plan to ensure
completion of project objectives.5 “As Project Manager, ERM was required to ‘monitor all work
items for compliance with project documents.’”6 “During construction, ERM was to ‘manage all
daily elements of the implementation’ to ensure that all project requirements were met, including

2

Docket No. 85 Ex. 1, at 1.

3

Id. Ex. 1, at 2.

4

See id. at 5–6 (citing Docket No. 85 Ex. 1, at 1–3).

5

See id. at 6 (citing Docket No. 85 Ex.1, at 4–5).

6

Id. (quoting Docket No. 85 Ex. 1, at 6).
3

the project’s ultimate goal of complete physical removal of all hydrocarbon-impacted
sediments.”7
On January 15, 2004, the Working Group sent a letter to the EPA designating ERM as its
“Project Coordinator to oversee work in the PRP Group Work Area, as defined in the AOC.”8
“In short, ERM was hired and designated as the Working Group’s agent to coordinate the
remediation of the NWOD Canal and ensure compliance with the AOC on behalf of the Working
Group.”9
The subject of the instant Motion is Plaintiffs’ fifth cause of action for breach of agency
duties, brought on behalf of all Plaintiffs against ERM. Plaintiffs allege that they “hired ERM as
their Project Coordinator and agent to administer the Working Group’s duties under the AOC,
and they specifically designated ERM as their representative and agent to the EPA.”10 Plaintiffs
further allege that ERM “consented to such an agency relationship by . . . specifically providing
in the Compass Contract (which ERM drafted) that it was the OWNER’s representative and
agent and by acting as such throughout the course of the NWOD Project.”11

7

Id. (quoting Docket No. 85 Ex. 1, at 6).

8

Id. Ex. 2, at 2.

9

Id. at 7.

10

Id. at 25.

11

Id. (internal quotation marks and emphasis omitted).
4

According to Plaintiffs, ERM breached its duties as Plaintiffs’ agent by: (1) “failing to
ensure compliance with project objectives;”12 (2) “failing to perform its services in accordance
with the best professional judgment and skill, as required by the PSA;”13 (3) “recommending a
deficient remediation technology;”14 (4) “developing a deficient sampling method and failing to
even ensure proper implementation of that method;”15 (5) “failing to properly oversee the
construction;”16 (6) “certifying that the project was complete and allowing Compass to
demobilize when in fact project objectives had not been met;”17 and (7) “by failing to adequately
inform the Working Group of the gravity of the sampling exceedances and of its failure to obtain
proper approval from the EPA for those exceedances.”18
II. STANDARD OF REVIEW
In considering a motion to dismiss for failure to state a claim upon which relief can be
granted under Rule 12(b)(6), all well-pleaded factual allegations, as distinguished from
conclusory allegations, are accepted as true and viewed in the light most favorable to Plaintiffs as

12

Id. at 26.

13

Id. (internal quotation marks omitted).

14

Id.

15

Id.

16

Id.

17

Id.

18

Id.
5

the nonmoving party.19 Plaintiffs must provide “enough facts to state a claim to relief that is
plausible on its face,”20 which requires “more than an unadorned, the-defendant-unlawfully
harmed-me accusation.”21
“A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements
of a cause of action will not do.’ Nor does a complaint suffice if it tenders ‘naked assertion[s]’
devoid of ‘further factual enhancement.’”22 “The court’s function on a Rule 12(b)(6) motion is
not to weigh potential evidence that the parties might present at trial, but to assess whether the
plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.”23
As the Court in Iqbal stated,
only a complaint that states a plausible claim for relief survives a motion to
dismiss. Determining whether a complaint states a plausible claim for relief will
. . . be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense. But where the well-pleaded facts do not
permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not show[n]—that the pleader is entitled to
relief.24

19

GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.

20

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).

1997).

21

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

22

Id. (quoting Twombly, 550 U.S. at 557) (alteration in original).

23

Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).

24

Iqbal, 556 U.S. at 679 (alteration in original) (internal quotation marks and citations
omitted).
6

In considering the adequacy of a plaintiff’s allegations in a complaint subject to a motion
to dismiss, a district court not only considers the complaint, but also “documents incorporated
into the complaint by reference, and matters of which a court may take judicial notice.”25 Thus,
notwithstanding the usual rule that a court should consider no evidence beyond
the pleadings on a Rule 12(b)(6) motion to dismiss, “[a] district court may
consider documents referred to in the complaint if the documents are central to the
plaintiff’s claim and the parties do not dispute the documents’ authenticity.”26
III. DISCUSSION
At issue is whether Plaintiffs’ fifth cause of action for breach of agency duties is barred
by the economic loss rule.
“The economic loss rule is a judicially created doctrine that marks the fundamental
boundary between contract law, which protects expectancy interests created through agreement
between the parties, and tort law, which protects individuals and their property from physical
harm.”27 “[T]he economic loss rule prevents parties who have contracted with each other from
recovering beyond the bargained-for risks.”28
Application of the economic loss rule is not limited to contracting parties. “Exempting
strangers to a contract from the economic loss rule would convert a contract cause of action into
25

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B
WRIGHT & MILLER § 1357 (3d ed. 2004 & Supp. 2007)).
26

Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (quoting Jacobsen v.
Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)).
27

SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., 28 P.3d 669, 680 (Utah

28

Sunridge Dev. Corp. v. RB & G Eng’g, Inc., 230 P.3d 1000, 1006 (Utah 2010).

2001).

7

one for tort.”29 As such, Utah courts have frequently applied the economic loss rule to bar tort
claims brought by non-contracting parties.30
It is settled law that “[w]here the economic loss rule is at issue, the ‘initial inquiry’
becomes ‘whether’ a duty exists independent of any contractual obligations between the
parties.”31 “A duty may arise from one of several sources. Duties may emanate from bargains,
and therefore be within the ambit of contract law, and duties may also emanate from the
interdependent nature of human society, in which case they are governed by tort principles.”32
“[O]nce there is a contract, any tort claim must be premised upon an independent duty
that exists apart from the contract. All contract duties, and all breaches of those duties must be
enforced pursuant to contract law.”33
The independent duty principle is a means of measuring the reach of the economic
loss rule. When a duty exists that does not overlap with those contemplated in a

29

Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims
Landing, LC, 221 P.3d 234, 244 (Utah 2009).
30

See Am. Towers Owners Ass’n v. CCI Mech., Inc., 930 P.2d 1182 (Utah 1996) (barring
condominium homeowners from collecting economic damages from contractors for faulty
construction in the plumbing and mechanical systems of the building where homeowners were
not parties to any of the construction contracts and had no enforceable rights as third-party
beneficiaries); Fennell v. Green, 77 P.3d 339 (Utah Ct. App. 2003) (barring a homeowner’s
claim against a developer for negligent misrepresentation and finding that “the economic loss
rule applies to prevent the imposition of ‘economic expectations’ on non-contracting parties”).
31

Davencourt, 221 P.3d at 244 (quoting Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah

2002)).
32

Reighard v. Yates, 285 P.3d 1168, 1176 (Utah 2012) (internal quotation marks and
citations omitted).
33

Id. at 1177 (internal quotation marks and citation omitted).
8

contract, “the economic loss rule does not bar a tort claim because the claim is
based on a recognized independent duty of care and thus does not fall within the
scope of the rule.”34
Plaintiffs argue that the economic loss rule does not apply because ERM owed Plaintiffs
an independent duty of care as their agent. ERM does not appear to contend that Plaintiffs have
not alleged facts sufficient to maintain an agency relationship;35 rather, ERM contends that
Plaintiffs’ agency claims are barred by the economic loss rule because the claims are not brought
independent of the PSA.
Plaintiffs cite Clearone Communications, Inc. v. JAS Forwarding36 for the proposition
that the allegation of an agency relationship forecloses application of the economic loss rule.
Plaintiffs overstate the holding of Clearone. In that case, the court declined to apply the
economic loss rule based on its finding that the case involved “factual disputes regarding the
character of the relationship between the parties and what, if any, duty was owed, that cannot be
resolved on a motion to dismiss.”37 Unlike Clearone, here the Court is not confronted with any
factual disputes as to the duties or standard of care owed by ERM.

34

Id. (quoting Hermansen, 48 P.3d at 240).

35

See Wardley Corp. v. Welsh, 962 P.2d 86, 89 (Utah Ct. App. 1998) (“Agency is the
fiduciary relation which results from the manifestation of consent by one person to another that
the other shall act on his behalf and subject to his control, and consent by the other so to act.”)
(internal citations omitted); City of Grantsville v. Redevelopment Agency of Tooele City, 233
P.3d 461, 473 (Utah 2010) (“The manifestation of consent to form an agency relationship can be
established by contract or implied by the factual circumstances.”).
36

2009 WL 3248120 (D. Utah Oct. 7, 2009).

37

Id. at *3.
9

Plaintiffs do not dispute that the standards of care alleged in their breach of contract and
breach of agency duties claims are indistinguishable. Nevertheless, Plaintiffs argue that their
breach of agency claims need not be different to meet the “independent duty” requirement of the
economic loss rule. The Court is unable to find support for such a proposition in Utah law.
Rather, courts that have considered this issue have required that “independent” claims allege
“acts or omissions [that] resulted in [the] breach of an independent duty not already defined by
contract.”38 Thus, the party seeking to maintain a tort claim for purely economic losses must
allege the violation of a standard of care that is not coextensive with that contained in the
relevant contracts.
A recent case from this court, Stewart Title Guaranty Co. v. Summit Escrow and Title
Agency, LCC,39 is illustrative of this point. In that case, Stewart Title brought claims against
Summit for negligence and breach of contract. Stewart Title’s negligence claim was premised on
Summit’s status as Stewart Title’s agent, a relationship that was contemplated in the parties’
contract. The court reviewed Stewart Title’s allegations of breach of agency duties and found
that its “negligence claim is indistinguishable from the parties’ contractually created duties.”40

38

Interwest Constr. v. Palmer, 886 P.2d 92, 101 (Utah Ct. App. 1994), aff’d, 923 P.2d
1350 (Utah 1996) (citing Beck v. Farmers Ins. Exch., 701 P.2d 795, 799–800 (Utah 1985)); see
also N.Y. Univ. v. Cont’l Ins. Co., 662 N.E.2d 763 (N.Y. 1995) (holding that “defendant may be
liable in tort when it has breached a duty of reasonable care distinct from its contractual
obligations,” because a “tort obligation is a duty imposed by law . . . apart from and independent
of promises made and therefore apart from the manifested intention of the parties to a contract”).
39

2012 WL 2368214 (D. Utah June 21, 2012).

40

Id. at *3.
10

For this reason, the court concluded that “Stewart Title’s negligence claim is not independent
from its breach of contract claim” and is “barred by the economic loss rule.”41
This Court’s application of the “independent” language of the economic loss rule in
Stewart Title is not unique. In Interwest Construction v. Palmer, the Utah Court of Appeals
applied the economic loss rule to dismiss tort claims that it found “exactly co-extensive with [the
parties’] contractual obligations.”42
Though not binding precedent, the Court is also persuaded by the reasoning of the
Colorado Supreme Court in BRW, Inc. v Dufficy & Sons, Inc.43 In BRW, a subcontractor on a
public-works project attempted to sue the project engineer and inspector for negligence and
negligent misrepresentation. The subcontractor argued, and the court of appeals held, that the
economic loss rule did not bar the subcontractor’s claim against the engineer because the
engineer owed the contractor and subcontractors an independent duty of care. On appeal, the
Colorado Supreme Court reversed the court of appeals, holding that the “economic loss rule
requires the court to focus on the contractual relationship between the parties, rather than their
professional status, in determining the existence of an independent duty of care.”44
In considering the subcontractor’s negligence claim, the BRW court “focus[ed] first on the
contractual context among and between the parties to see whether there was a contractual
41

Id.

42

Interwest, 886 P.2d at 101.

43

99 P.3d 66 (Colo. 2004).

44

Id. at 71.
11

relationship that established the duty of care alleged to have been breached.”45 The court
instructed that, were it to “conclude that the duty of care owed by BRW and PSI was
memorialized in the contracts, it follows that the plaintiff has not shown any duty independent of
the interrelated contracts and the economic loss rule bars the tort claim and holds the parties to
the contracts’ terms.”46 After comparing the parties’ contractual duties to the common law duties
the defendants were alleged to have breached, the court concluded that the contracts required the
defendants to meet the same standards of care applicable to the subcontractor’s tort claims.
Based on this finding, the BRW court held that “the duties allegedly breached were contained in
the network of interrelated contracts, and the economic loss rule applies.”47
Reviewing the allegations of Plaintiffs’ Second Amended Complaint, the Court finds that
ERM’s alleged breach of its standard of care as Plaintiffs’ project coordinator and agent is the
same and coextensive with its alleged breach of the PSA. Further, each of the alleged violations
of ERM’s common law duties are expressly provided for in the PSA. Therefore, Plaintiffs have
failed to demonstrate that ERM breached any “duties, rights, or obligations independent of those

45

Id. at 73 (citing Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo. 2000)).

46

Id. at 74 (citing Grynberg, 10 P.3d at 1270; Berschauer/Phillips Constr. Co. v. Seattle
Sch. Dist. No. 1, 881 P.2d 986, 992 (1994) (explaining that, “[t]he construction industry . . .
would suffer [if tort and contract remedies were allowed to overlap], for it is in this industry that
we see most clearly the importance of the precise allocation of risk as secured by contract”)).
47

Id.
12

imposed upon [it] under contract.”48 Accordingly, Plaintiffs’ agency claims are barred by the
economic loss rule.
IV. CONCLUSION
Based on the foregoing, it is hereby
ORDERED that Defendant ERM’s Motion to Dismiss Plaintiffs’ Agency Claim (Docket
No. 88) is GRANTED.
DATED October 30, 2013.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

48

Interwest, 886 P.2d at 101 (emphasis in original).
13