Board of Educ. of Hudson City School Dist. v. Sargent, Webster, Crenshaw & Folley

• Decision Date: 17 December 1987
• Citation: 523 N.Y.S.2d 475,71 N.Y.2d 21,517 N.E.2d 1360
• Parties: , 517 N.E.2d 1360, 44 Ed. Law Rep. 552 BOARD OF EDUCATION OF the HUDSON CITY SCHOOL DISTRICT, Plaintiff, v. SARGENT, WEBSTER, CRENSHAW & FOLLEY, Defendant and Third-Party Plaintiff- Appellant. Thompson Construction Corporation, Third-Party Defendant-Respondent, et al., Third-Party Defendants. (And a Fourth-Party Action.)
• Court: New York Court of Appeals Court of Appeals

Page 475

523 N.Y.S.2d 475

71 N.Y.2d 21, 517 N.E.2d 1360, 44 Ed.

Law Rep. 552

BOARD OF EDUCATION OF the HUDSON CITY SCHOOL DISTRICT, Plaintiff, v. SARGENT, WEBSTER, CRENSHAW & FOLLEY, Defendant and

Third-Party Plaintiff- Appellant.

Thompson Construction Corporation, Third-Party

Defendant-Respondent, et al., Third-Party Defendants.

(And a Fourth-Party Action.)

Court of Appeals of New York.

Dec. 17, 1987.

[517 N.E.2d 1361] Fred J. Hutchison and Kenneth G. Varley, Albany, for defendant and third-party plaintiff-appellant

[71 N.Y.2d 23] George F. Carpinello, Albany, for third-party defendant-respondent.

OPINION OF THE COURT

ALEXANDER, Judge.

Under New York State's contribution statute, "two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought" (CPLR 1401). The issue presented on this appeal is whether CPLR 1401 permits contribution between two parties whose potential liability to a third party is for economic loss resulting only from a breach of contract. We conclude that it does not.

This third-party action arises from a high school construction project undertaken for the Hudson City School District (District). Appellant Sargent, Webster, Crenshaw & Folley (Sargent) is the architectural firm that was hired by the District to work on the project; respondent Thompson Construction Corp. (Thompson) was hired as the project's general contractor. Each was party to a separate contract with the District. Sargent's contract, entered into on March 21, 1966, required it to prepare plans and specifications for the building, supervise its construction, inspect the building subsequent to its construction, and advise the District of any measures required to remedy possible defects in the building. Thompson's contract, entered into on February 28, 1969, required it to perform the actual construction work.

Sargent issued its final certificate of completion for the building on September 18, 1972, and soon thereafter the building's roof began to leak. It was not until 1980, however, that the District commenced an action against Sargent and Thompson seeking damages for breach of contract. In its complaint, the District alleged that the roofing on the high school was defective and not of the type for which it contracted. Sargent was charged with having failed to obtain a 20-year guarantee bond and certificate of compliance from the manufacturer of the roofing materials; to obtain proper approval of the roofing subcontractor; to obtain a two-year written guarantee for the roof signed by Thompson and the roofing subcontractor; and generally, to perform its required duties in the administration of the contract. Thompson was alleged to have failed to construct the proper type of roof; to provide guarantees for the roof; to inspect the roof for a two-year period after construction; and to make repairs on the roof. The District further alleged, as explanation for its delay in bringing the lawsuit, that Sargent and Thompson had fraudulently concealed both the defective condition of the roof and the fact that the various guarantees for the roof had not been furnished.

Sargent and Thompson each moved to dismiss the complaint as being barred by the six-year Statute of Limitations applicable to contract actions (CPLR 213[2] ). Special Term granted Thompson's motion to dismiss but denied Sargent's motion, holding that the "continuous treatment" doctrine, applicable in cases of professional malpractice, operated to toll the Statute of Limitations so as to make the action brought against the architect timely (see, Greene v. Greene, 56 N.Y.2d 86, 451 N.Y.S.2d 46, 436 N.E.2d 496; see also, Sears, Roebuck & Co. v. Enco Assocs., 43 N.Y.2d 389, 401 N.Y.S.2d 767, 372 N.E.2d 555). The Appellate Division affirmed in all respects (Board of Educ. v. Thompson Constr. Corp., 111 A.D.2d 497, 488 N.Y.S.2d 880), concluding specifically that the District's cause of action sounded in contract, and was therefore governed by a six-year Statute of Limitations.

Sargent subsequently instituted this third-party action seeking contribution or indemnification from Thompson for whatever damages it might incur in the action brought by the District. Thompson moved to dismiss the third-party complaint for failure to state a cause of action (see, CPLR 3211[a][7] ). Special Term denied the motion, holding that "the dismissal of a plaintiff's cause of action against one primary defendant based upon a statutory bar does not vitiate a primary codefendant's ability to maintain a third-party action against the dismissed primary defendant". The court thus concluded that Sargent's third-party action could go forward, and it left for trial the determination of whether the action was properly one for contribution or indemnification.

The Appellate Division reversed and dismissed the third-party complaint, concluding that the contribution statute (CPLR 1401) has no application where "the potential liability to the plaintiff of both the defendant and the third-party defendant is purely for contractual benefit of the bargain * * * or loss of the value of promised performance" (125 A.D.2d 27, 29, 511 N.Y.S.2d 961). The court held further that Sargent had not set forth the elements of an indemnity claim, but it granted leave to replead that cause of action (see, CPLR 3211[e] ). The lone dissenting Justice would have affirmed, concluding that not only had Sargent adequately stated a cause of action for indemnification, but that "[i]n causes of action for contribution, the emphasis has been on whether the parties involved in the third-party action contributed to the same injury rather than the particular theories of law sued upon" (125 A.D.2d at 32, 511 N.Y.S.2d 961).

The Appellate Division granted leave to this court, certifying the following question: "Did this court err, as a matter of law, in reversing the order of Special Term, granting the motion and dismissing the third-party complaint against third-party defendant Thompson Construction Corporation, with leave to replead so much thereof as asserted a cause of action for indemnification within 20 days after service of a copy of the order?" We now affirm and answer the certified question in the negative.

That purely economic loss resulting from a breach of contract does not constitute "injury to property" within the meaning of New York's contribution statute is made plain by the legislative history of CPLR 1401 (L.1974, ch. 742, § 1). That statute, proposed by the Judicial Conference of the State of New York, was intended as a codification of Dole v. Dow Chem. Co., 30 N.Y.2d 143, 331 N.Y.S.2d 382, 282 N.E.2d 288, a watershed case that "drastically chang[ed] the law of this State regarding the apportionment rights of joint tort-feasors" (D'Ambrosio v. City of New York, 55 N.Y.2d 454, 461-462, 450 N.Y.S.2d 149, 435 N.E.2d 366; see, Ravo v. Rogatnick, 70 N.Y.2d 305, 312, 520 N.Y.S.2d 533, 514 N.E.2d 1104; Guzman v. Haven Plaza Hous. Dev. Fund Co., 69 N.Y.2d 559, 567, 516 N.Y.S.2d 451, 509 N.E.2d 51; Schauer v. Joyce, 54 N.Y.2d 1, 5, 444 N.Y.S.2d 564, 429 N.E.2d 83).

The common-law rules of contribution were extremely rigid, precluding apportionment of liability among tort-feasors. As we observed in Dole, "[t]he basic theoretical bar at common law to any apportionment among those who committed torts, either by indemnity or by contribution, was the unwillingness of the law as a matter of policy to make relative value judgments of degrees of culpability among wrongdoers" (Dole v. Dow Chem. Co., 30 N.Y.2d 143, 147, 331 N.Y.S.2d 382, 282 N.E.2d 288, supra [citation omitted] ). This absolute bar to apportionment eventually gave way to limited contribution among tort-feasors under former CPLR 1401 (L.1962, ch. 308, as amended by L.1964, ch. 388, § 5), ¹ which permitted contribution only on a pro rata basis between tort-feasors who were subject to the same money judgment (see, McLaughlin, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, Cl401:1, at 360-361). This restrictive rule, however, retained in the plaintiff the power to choose which defendants should be adjudicated joint tort-feasors. Consequently, those defendants who were not sued by the plaintiff could not be required to contribute to the plaintiff's damages (D'Ambrosio v. City of New York, 55 N.Y.2d 454, 460, 450 N.Y.S.2d 149, 435 N.E.2d 366, supra; see, Green Bus Lines v. Consolidated Mut. Ins. Co., 74 A.D.2d 136, 148-149, 426 N.Y.S.2d 981, lv. denied 52 N.Y.2d 701, 436 N.Y.S.2d 1025, 417 N.E.2d 572; McLaughlin, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, Cl401:1, at 360-361).

To ameliorate the harshness of this contribution rule upon those tort-feasors who happened to be sued by an injured plaintiff, a theory of "implied indemnification" was employed to permit an adjudicated tort-feasor to seek indemnification from other nonparty tort-feasors if the negligence of the adjudicated tort-feasor was only "passive" or of a secondary nature (see, D'Ambrosio v. City of New York, 55 N.Y.2d 454, 461, 450 N.Y.S.2d 149, 435 N.E.2d 366, supra ). Under this implied indemnification theory, however, there was no apportionment of liability between the tort-feasors; one was either "secondarily" negligent and completely free from liability, or one was "primarily" negligent and responsible for all of the plaintiff's damages. No form of liability in between the two extremes could lie (see, D'Ambrosio v. City of New York, 55 N.Y.2d 454, 461, 450 N.Y.S.2d 149, 435 N.E.2d 366, supra ).

Dole liberalized the contribution rules to allow an adjudicated tort-feasor to seek contribution, or "partial indemnity", from another tort-feasor whether or not the second tort-feasor had been made a party to the action (see, D'Ambrosio v....