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
Docket NumberCivil Action No. 2:19-cv-74-jmc
PartiesCountry Mutual Insurance Co., Plaintiff, v. Altisource Online Auction, Inc., Defendant.
Decision Date24 July 2020

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

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


July 24, 2020


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.,2 a property management company, for negligence, breach of contract, and breach of implied warranties.3 Plaintiff alleges that Defendant failed to winterize a property that it was contracted to winterize, causing a water leak and resulting damage to the property. (Doc. 26 at 2-3, ¶¶ 10-11.)

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Defendant has filed a Motion to Dismiss Plaintiff's Amended Complaint for failure to state a claim upon which relief may be granted (Doc. 31), and Plaintiff has filed an Opposition thereto (Doc. 36). Oral argument on the Motion was held via telephone on June 5, 2020. For the reasons stated below, the Motion to Dismiss is GRANTED.

Factual and Procedural Background

The following facts are taken from the Amended Complaint (Doc. 26), and are accepted as true for purposes of ruling on the pending Motion to Dismiss, see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plaintiff provided property insurance "via a policy in favor of its subrogor, 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.) "Sometime prior [to] January 19, 2015," Defendant was retained as "the foreclosure specialist and to winterize the subject property." (Id. at 2, ¶ 9.) "On or about January 19, 2015," Defendant neglected to properly winterize the property, resulting in the sprinkler system freezing and bursting, and causing a substantial water leak, which resulted in damage to the property. (Id. ¶ 10.) Insurance claims regarding the property damage were submitted and paid, and Plaintiff became subrogated to the recovery rights and interests of TPW as subrogor. (Id. at 3, ¶ 11.)

Based on these facts, on May 9, 2019, Plaintiff filed the original Complaint, bringing claims against Defendant for negligence, breach of contract, and breach of implied warranties. (Doc. 1.) Thereafter, the parties stipulated to the filing of an

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amended complaint, which Plaintiff filed on September 30, 2019. (Doc. 26.) The Amended Complaint maintains the same claims alleged against Defendant in the original Complaint, and seeks damages "in an amount in excess of $75,000.00" for the alleged damage to the subject property, "as well as additional expenses." (Id. at 3, ¶ 11).

Despite alleging 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 (emphasis added)), Plaintiff has neither attached the alleged contract to the Amended Complaint nor alleged therein who the other party to the contract was. Based partially on this apparent deficiency, on November 1, 2019, Defendant filed the instant Motion to Dismiss, making three principal arguments. (Doc. 31.) First, Defendant argues that Plaintiff's negligence claim is barred by the economic loss rule because the Amended Complaint alleges neither an injury outside the scope of the alleged contract nor an independent duty of care owed by Defendant. (Id. at 3-4.) Second, Defendant argues that Plaintiff's breach-of-contract claim fails because the Amended Complaint does not sufficiently plead facts supporting either the existence of a contract between Plaintiff or TPW and Defendant, or Plaintiff's or TPW's right to recover as a third-party beneficiary of the alleged contract. (Id. at 4-7.) And third, Defendant argues that Plaintiff's breach-of-implied-warranties claim fails because, without properly alleging the existence of a contract between the parties or between TPW and Defendant, or that Plaintiff or TPW was a third-party

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beneficiary to such a contract, there is no privity and thus no cognizable claim for breach of implied warranty. (Id. at 7.)


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, 556 U.S. at 678; see Twombly, 550 U.S. at 570 ("[W]e do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face."). "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 Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level.").

In assessing the adequacy of the pleadings on a Rule 12(b)(6) motion to dismiss, 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,

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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] . . . without some further 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), which "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). The rule "serves to maintain a distinction between contract and tort law." Id. The Vermont Supreme Court 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 those involving unanticipated physical injury, and claimants cannot seek, through tort law, to alleviate losses incurred pursuant to a contract.

EBWS, 2007 VT 37, ¶ 30 (emphasis added) (internal citation and quotation marks omitted). Stated differently, "injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which

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relief lies in contract rather than tort law." Walsh v. Cluba, 2015 VT 2, ¶ 28, 198 Vt. 453, 117 A.3d 798. The economic loss rule does not, however, bar tort claims when "the claim is that negligent work damaged 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).

Here, the Amended Complaint broadly alleges that Defendant "was retained . . . to winterize the subject property"—which is defined as "unit #10" of "the property located at 2680 Hartford Avenue in Wilder, Vermont." (Doc. 26 at 2, ¶ 9; see id. at 1-2, ¶ 4.) The Amended Complaint further alleges that Defendant's failure to "properly" winterize the property caused "a substantial water leak[,] resulting in damages to the subject property." (Id. at 2, ¶ 10 (emphasis added).) As alleged, the damages Plaintiff asserts that 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 lease agreement). Specifically, Plaintiff alleges that Defendant's negligent conduct resulted in damage to "the subject property" (Doc. 26 at 2, ¶ 10; see id. at 3, ¶ 11)—the aforementioned "unit #10"—which Plaintiff asserts is precisely the subject of the contract at issue in this suit (see id. at 2, ¶¶ 9-10; 4, ¶ 17). The Amended Complaint does not allege that Plaintiff sustained damage to any "other property," which was not the subject of a contract.4 Therefore, the economic loss rule

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bars Plaintiff's negligence claim. See Springfield Hydroelectric Co. v. Copp, 172 Vt. 311, 314, 779 A.2d 67, 70 (2001) ("As our caselaw makes clear, claimants cannot seek, through tort law, to alleviate losses incurred pursuant to a contract.").

In support of its negligence claim, Plaintiff points to two cases: Cincinnati Insurance Co., 2019 WL 5698930, and Moffitt v. Icynene, 407 F. Supp. 2d 591 (D. Vt. 2005). But in those cases, unlike here, the respective plaintiffs alleged damage to property outside the scope of the subject contracts. In Moffitt, the relevant contract related to the installation of a particular type of...

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