Country Mut. Ins. Co. v. Altisource Online Auction, Inc., Civil Action No. 2:19-cv-74-jmc

CourtUnited States District Courts. 2nd Circuit. District of Vermont
Writing for the CourtJohn M. Conroy United States Magistrate Judge
Decision Date23 July 2020
PartiesCountry Mutual Insurance Co., Plaintiff, v. Altisource Online Auction, Inc., Defendant.
Docket NumberCivil Action No. 2:19-cv-74-jmc

Country Mutual Insurance Co., Plaintiff,
v.
Altisource Online Auction, Inc., Defendant.

Civil Action No. 2:19-cv-74-jmc

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF VERMONT

July 23, 2020


OPINION AND ORDER
(Doc.
31)

Plaintiff Country Mutual Insurance Company, individually and as successor to Middlesex Mutual Assurance Company as subrogee of TPW Management LLC (TPW), brings this action against Defendant Altisource Solutions, Inc.,1 a property management company, for negligence, breach of contract, and breach of implied warranties.2 Plaintiff alleges that Defendant failed to winterize a property that it was contracted to winterize, resulting in significant water damage to the property. (Docs. 1, 26.)

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Now pending before the Court is Defendant's Motion to Dismiss (Doc. 31). Oral argument on the Motion was held via telephone on June 5, 2020. For the reasons stated below, the Motion is GRANTED.

Factual and Procedural Background

Plaintiff states that it provided property insurance to TPW, a condominium association responsible for a condominium located at 2680 Hartford Avenue, Unit 10 in Wilder, Vermont. (Doc. 26 at 1-2, ¶¶ 3-4.) Plaintiff alleges that Defendant was retained to winterize the condominium but failed to do so. (Id. at 2, ¶¶ 9-10.) Plaintiff does not attach the alleged contract to the Complaint or specify who retained Defendant; instead, Plaintiff states that, "[u]pon information and belief, a contract involving winterizing the subject property existed between [Defendant] and the party in whose care, custody and control the subject property was as of January 19, 2015." (Id. at 4, ¶ 17.) On that date, allegedly as a result of Defendant's failure to properly winterize the property, the sprinkler system froze and burst, causing substantial water damage to the unit. (Id. at 2, ¶ 10.) Plaintiff contends that it sustained in excess of $75,000 in damages and expenses. (Id. at 3, ¶ 11.) It asserts claims of negligence, breach of contract, and breach of implied warranties. (Id. at 3, 4, 6.)

On November 1, 2019, Defendant filed the instant Motion to Dismiss. (Doc. 31.) It argues that Plaintiff's negligence claim is barred by the economic loss rule because Plaintiff fails to allege any injury outside the scope of the alleged contract and because Plaintiff fails to allege Defendant owed it an independent duty.

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(Id. at 3-4.) Defendant further argues that Plaintiff's breach-of-contract claim must be dismissed because it fails to sufficiently plead facts supporting the existence of a contract or its subrogor's right to recover as a third-party beneficiary. (Id. at 4-7.) Finally, Defendant contends that Plaintiff's claim for breach of implied warranties should be dismissed because Plaintiff fails to establish contractual privity. (Id. at 7.)

Analysis

I. Legal Standard

In evaluating whether to dismiss a complaint for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), the court tests the pleading for "facial plausibility." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. This does not require a plaintiff to provide "detailed factual allegations" to support his claims, Twombly, 550 U.S. at 555, but plaintiffs must allege facts that permit "more than a sheer possibility that a defendant has acted unlawfully," Iqbal, 556 U.S. at 678. Accordingly, allegations that "are so vague as to fail to give the defendants adequate notice of the claims against them," are subject to dismissal. Sheehy v. Brown, 335 F. App'x 102, 104 (2d Cir. 2009); see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level.").

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In assessing the adequacy of the pleadings, a court must accept all factual assertions as true and draw all reasonable inferences in favor of the plaintiff. Lanier v. Bats Exch., Inc., 838 F.3d 139, 150 (2d Cir. 2016). However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678; see Twombly, 550 U.S. at 555, 557 (holding that a pleading containing "a formulaic recitation of the elements of a cause of action," "labels and conclusions," or "naked assertion[s]" devoid of factual enhancement, does not satisfy Federal Rule of Civil Procedure 8(a)). A complaint is properly dismissed where, as a matter of law, "the allegations in [it], however true, could not raise a claim of entitlement to relief." Twombly, 550 U.S. at 558. "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." Iqbal, 556 U.S. at 679.

II. Negligence Claim

Defendant argues that Plaintiff's negligence claim is barred by the economic loss rule. (Doc. 31 at 3-4.) "The economic loss rule 'prohibits recovery in tort for purely economic losses.'" Long Trail House Condo. Ass'n v. Engelberth Constr., Inc., 2012 VT 80, ¶ 10, 192 Vt. 322, 59 A.3d 752 (quoting EBWS, LLC v. Britly Corp., 2007 VT 37, ¶ 30, 181 Vt. 513, 928 A.2d 497). It "serves to maintain a distinction between contract and tort law." Id. As the Vermont Supreme Court has explained:

In tort law, duties are imposed by law to protect the public from harm, whereas in contract the parties self-impose duties and protect themselves through bargaining. Thus, negligence actions are limited to

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those involving unanticipated physical injury, and claimants cannot seek, through tort law, to alleviate losses incurred pursuant to a contract.

EBWS, LLC, 2007 VT 37, ¶ 30 (internal citation and quotation marks omitted). The economic loss rule "does not bar tort claims when the claim is that negligent work damages other property," which was not the subject of a contract. Cincinnati Ins. Co. v. S. Vt. Sprinkler Servs., Inc., Case No. 5:17-cv-254, 2019 WL 5698930, at *4 (D. Vt. July 10, 2019). However, "injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which relief lies in contract rather than tort law." Walsh v. Cluba, 2015 VT 2, ¶ 28, 198 Vt. 453, 117 A.3d 798.

Here, Plaintiff broadly alleges that Defendant was contracted "to winterize the subject property"—specifically, Unit 10 of the condominium building. (Doc. 26 at 1-2, ¶¶ 4, 9.) Plaintiff states that Defendant's failure to do so caused "a substantial water leak[,] resulting in damages to the subject property." (Id. at 2, ¶ 10 (emphasis added).) As alleged, the damages Plaintiff asserts it (or its subrogor) incurred fall within the broad scope of the purported contract. See Walsh, 2015 VT 2, ¶ 29 (applying economic loss rule because alleged damage to leased commercial property was covered by broad scope of the contract, i.e., the lease agreement for the commercial property). More plainly, Plaintiff claims that it suffered damage to "the subject property"—Unit 10—which was precisely the subject of the alleged contract. Therefore, because Plaintiff fails to allege in the Amended Complaint that it

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sustained damage to "other property," which was not the subject of a contract, the economic loss rule bars Plaintiff's negligence claim.3

In support of its claims, Plaintiff points to Cincinnati Insurance Co., 2019 WL 5698930, and Moffitt v. Icynene, 407 F. Supp. 2d 591 (D. Vt. 2005). However, Plaintiff's reliance on those cases is misplaced because, unlike here, the plaintiffs in both Cincinnati Insurance and Moffitt alleged damage to property outside the scope of the involved contracts. In Moffitt, the contract at issue related solely to the installation of a particular type of insulation in the plaintiffs' home. The plaintiffs there alleged that the defendant's negligence caused property damage to other aspects of the home. Thus, the economic loss rule did not apply "[s]ince the [plaintiffs] [sought] to recover for physical damage to other property." Moffitt, 407 F. Supp. 2d at 601 (emphasis added). Similarly, in Cincinnati Insurance, the contract concerned the testing, maintenance, and repair of a sprinkler system in an assisted-living facility. When the system's pipes froze and burst in the winter, it caused damage to the sprinkler system as well as water damage to twelve rooms in the facility. Because the plaintiff, as subrogee of the facility, sought "to recover repair costs for damage to property not covered by [the subrogor's] maintenance contract," the economic loss rule did not bar the plaintiff's tort claims. Cincinnati Ins. Co., 2019 WL 5698930, at *4. By contrast, in this case, Plaintiff alleges only that it

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incurred damage to property that was the subject of the contract. Accordingly, the economic loss rule precludes Plaintiff's tort claim.

Moreover, the Vermont Supreme Court has made clear that privity of contract is not a prerequisite to application of the economic loss rule.4 In Long Trail, the Vermont Supreme Court rejected the plaintiff's argument that the economic loss rule should not bar its claims because it didn't share contractual privity with the defendant. The court explained: "Privity, or lack thereof, is not the determining factor, nor are we persuaded that the rule's application turns on whether the parties had the opportunity to allocate risks, as the [plaintiff] suggests. Instead, the focus is more appropriately on duty . . . ." Long Trail, 2012 VT 80, ¶ 13. Thus, the determining factor is whether there is "a duty separate and apart from a contractual duty." Id.; see also Springfield Hydroelectric Co. v. Copp, 172 Vt. 311, 316, 779 A.2d 67, 71-72 (2001) ("The underlying analysis turns on whether there is a duty of care independ...

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