Brian & Christie, Inc. v. Leishman Elec., Inc.

• Decision Date: 24 November 2010
• Docket Number: No. 35929–2008.,35929–2008.
• Citation: 150 Idaho 22,244 P.3d 166
• Court: Idaho Supreme Court
• Parties: BRIAN AND CHRISTIE, INC., an Idaho corporation, dba Taco Time, an assumed business name, Plaintiff–Appellant, v. LEISHMAN ELECTRIC, INC., an Idaho corporation, Defendant–Respondent, and John Does 1–10, Defendants.

150 Idaho 22

244 P.3d 166

BRIAN AND CHRISTIE, INC., an Idaho corporation, dba Taco Time, an assumed business name, Plaintiff–Appellant,

v.LEISHMAN ELECTRIC, INC., an Idaho corporation, Defendant–Respondent,andJohn Does 1–10, Defendants.

No. 35929–2008.

Supreme Court of Idaho, Boise, September 2010 Term.

Nov. 24, 2010.

Racine, Olson, Nye, Budge & Bailey, Chartered, Pocatello, for appellant. John R. Goodell argued.

Cooper & Larsen, Chartered, Pocatello, for respondent. Gary L. Cooper argued.

EISMANN, Chief Justice.

This is an appeal from a judgment dismissing a claim for negligence in performing electrical work that caused a fire resulting in substantial damage to a restaurant and its contents. The district court dismissed this action on the ground that the claim was for purely economic damages and was barred by the economic loss rule. We vacate the judgment and remand for further proceedings.

I. FACTS AND PROCEDURAL HISTORY

Brian and Christie, Inc., d/b/a Taco Time, (Taco Time) owns and operates a Taco Time restaurant in Rexburg. In 1998, it engaged a general contractor to remodel the restaurant. The general contractor hired Leishman Electric, Inc., (Subcontractor) to perform the electrical work.

Taco Time purchased two used neon signs, transformers, and wiring from a third party and contracted with a sign company to install them. That company repaired and rewired one of the signs and installed both of them, including the transformers, on the restaurant building. It did not properly ground one of the signs, and one of the transformers lacked secondary ground fault protection in violation of the National Electric Code. The sign company did not connect the signs to electrical power.

After the signs were installed, Subcontractor connected them to electrical power. Prior to doing so, it did not check the wiring performed by the sign company nor did it check to determine whether the transformers complied with the Electric Code. After Subcontractor connected the signs and transformers to electrical power, they caused a fire that resulted in substantial damage to the building and its contents.

Taco Time filed a lawsuit against the sign company and Subcontractor. It amended its complaint to drop Subcontractor as a party and ultimately settled the lawsuit against the sign company. It then filed this lawsuit against Subcontractor on October 2, 2006.

On June 5, 2007, Subcontractor moved for summary judgment on the ground that the economic loss rule barred recovery against it on a negligence cause of action. The district court granted the motion, and Taco Time filed a motion for reconsideration. Several days later, it filed a motion to amend its complaint. The district court denied both motions and entered a judgment dismissing the complaint. Taco Time timely appealed.

II. ISSUES ON APPEAL

A. Did the district court err in holding that Taco Time's cause of action was barred by the economic loss rule?

B. Did the district court err in denying Taco Time's motion to amend its complaint?

C. Is Taco Time entitled to recover prejudgment interest?

D. Is Taco Time entitled to recover attorney fees on appeal?

III. ANALYSIS

A. Did the District Court Err in Holding that Taco Time's Cause of Action Was Barred by the Economic Loss Rule?

Taco Time's complaint alleges a cause of action against Subcontractor for the negligent performance of electrical work.¹ Taco Time contends that Subcontractor connected the neon signs and transformers to electrical power without first ascertaining that the signs were properly grounded and that the transformers complied with the National Electric Code; that such omission constituted negligence; and that such negligence caused a fire that damaged the restaurant and its contents. The district court held that Taco Time's cause of action was barred by the economic loss rule.

We first addressed the economic loss rule in Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978). We noted, "The economic expectations of parties have not traditionally been protected by the law concerning unintentional torts." Id. at 335, 581 P.2d at 793. In explaining the considerations underlying the distinction between the recovery of damages in tort for physical injuries to person or property and the recovery of purely economic loss for breach of warranty or contract, we quoted from Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, 151 (1965), as follows:

He [a manufacturer] can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will.

Clark was a products liability case. The plaintiff contended that the tractor he had purchased was negligently designed, resulting in breakdowns and a lack of power that caused him to lose profits in his custom farming operation. In addressing the manufacturer's duty, we explained:

The law of negligence requires the defendant to exercise due care to build a tractor that does not harm person or property. If the defendant fails to exercise such due care it is of course liable for the resulting injury to person or property as well as other losses which naturally follow from that injury. However, the law of negligence does not impose on International Harvester a duty to build a tractor that plows fast enough and breaks down infrequently enough for Clark to make a profit in his custom farming business. This is not to say that such a duty could not arise by a warranty express or implied by agreement of the parties or by representations of the defendant, but the law of negligence imposes no such duty.

99 Idaho at 336, 581 P.2d at 794.

In Clark, the negligence in designing the tractor that the plaintiff had purchased did not cause any injury to person or property. It simply caused the tractor not to perform properly in plaintiff's business. The resulting purely economic losses incurred by the plaintiff were not recoverable under a negligence cause of action because the manufacturer had no duty to design and manufacture a tractor that would plow fast enough and break down infrequently enough for the plaintiff to make a profit in his custom farming business. In essence, manufacturing an inferior product does not breach any duty imposed under negligence law where the product does not cause harm to person or property.

"The economic loss rule is a judicially created doctrine of modern products liability law."

63B Am.Jur.2d Products Liability § 1794 (2010). However, in Ramerth v. Hart, 133 Idaho 194, 197, 983 P.2d 848, 851 (1999), we stated, "The economic loss rule applies to negligence cases in general; its application is not restricted to products liability cases."

In Salmon Rivers Sportsman Camps, Inc. v. Cessna Aircraft Co., 97 Idaho 348, 544 P.2d 306 (1975), we provided a definition of economic loss. The issue in Salmon Rivers was whether one could recover damages against a manufacturer for breach of an implied warranty in the absence of privity of contract. While deciding that issue, we stated that the difference between property damage and economic loss was: "Property damage encompasses damage to property other than that which is the subject of the transaction. Economic loss includes costs of repair and replacement of defective property which is the subject of the transaction, as well as commercial loss for inadequate value and consequent loss of profits or use." Id. at 351, 544 P.2d at 309.

We have since applied that definition to cases involving the purchase of defective personal property and real property. See Tusch Enterprises v. Coffin, 113 Idaho 37, 41, 740 P.2d 1022, 1026 (1987) (purchase of three defective duplexes); Duffin v. Idaho Crop Imp. Ass'n, 126 Idaho 1002, 1007, 895 P.2d 1195, 1200 (1995) (purchase of defective seed potatoes); Ramerth v. Hart, 133 Idaho 194, 196, 983 P.2d 848, 850 (1999) (purchase of a defective airplane); Blahd v. Richard B. Smith, Inc., 141 Idaho 296, 300, 108 P.3d 996, 1000 (2005) (purchase of a defective house); Aardema v. U.S. Dairy Systems, Inc., 147 Idaho 785, 790, 215 P.3d 505, 510 (2009) (purchase of an allegedly defective milking system). In reaching its decision, the district court used this same definition, even though Taco Time's claim against Subcontractor did not involve the purchase of defective property. The district court's attempt to apply this formulation of the rule to a case involving the rendition of services illustrates why it does not apply to such cases.

First, the Salmon Rivers definition states, "Economic loss includes costs of repair and replacement of defective property which is the subject of the transaction...." 97 Idaho at 351, 544 P.2d at 309. In applying that definition to this case, the district court held that "the subject of the transaction with which [Subcontractor] was involved was the remodel project" and that it was "the restaurant/building, not the services provided via remodeling, that was the subject of the transaction."² In doing so, it misquoted the Salmon Rivers definition of economic loss.

Correctly quoted, that definition states, "Economic loss includes costs of repair and replacement of defective property which is the subject of the transaction...." Id. (emphasis added). In its analysis, the district court omitted the word "defective." Taco Time did not contend that it suffered economic loss because Subcontractor sold it a defective restaurant. The restaurant was not defective property. It did not spontaneously...