David v. Hett

• Decision Date: 30 December 2011
• Docket Number: No. 98,419.,98,419.
• Citation: 293 Kan. 679,270 P.3d 1102
• Parties: Scott DAVID and Sherry David, Appellants, v. David HETT, d/b/a Hett Construction, Appellee.
• Court: Kansas Supreme Court

270 P.3d 1102

293 Kan. 679

Scott DAVID and Sherry David, Appellants,

v.David HETT, d/b/a Hett Construction, Appellee.

No. 98,419.

Supreme Court of Kansas.

Dec. 30, 2011.

Syllabus by the Court

1. The economic loss doctrine is judicially created. It originated with product liability lawsuits to bar tort claims for economic recovery when the only alleged injury resulted from damage to the product. Over time, the doctrine was extended in some jurisdictions based on judicial views about the appropriateness of its application to other circumstances.

2. The economic loss doctrine should not bar claims by homeowners seeking to recover economic damages resulting from negligently performed residential construction services. The contrary holding in Prendiville v. Contemporary Homes, Inc., 32 Kan.App.2d 435, 83 P.3d 1257, rev. denied 278 Kan. 847 (2004), is overruled.

3. A homeowner's claim against a residential contractor may be asserted in tort, contract, or both, depending on the nature of the duty giving rise to the claim.

4. A breach of contract claim arises from the failure to perform a duty arising from or imposed by an agreement. A tort is a violation of a duty imposed by law.

Randall E. Fisher, of Law Office of Randall E. Fisher, of Wichita, argued the cause and was on the briefs for appellants.

Patrick J. Murphy, of Wallace, Saunders, Austin, Brown & Enochs Chartered, of Wichita, argued the cause and Craig C. Blumreich, of Larson & Blumreich, Chtd., of Topeka, was with him on the briefs for appellee.

The opinion of the court was delivered by BILES, J.:

This dispute questions whether the economic loss doctrine, which began as a prohibition against certain product liability actions, extends to tort claims brought by homeowners against residential service contractors for poor workmanship. The district court and Court of Appeals applied the doctrine and dismissed the homeowners' negligence theories. But we hold the doctrine should not apply. Our existing caselaw establishes that homeowners' claims against residential contractors may be asserted in tort, contract, or both, depending on the nature of the duty giving rise to each claim. We also find that the rationales upholding the economic loss doctrine do not support its adoption for disputes between homeowners and their contractors. We reverse and remand to the district court to determine whether there is any alleged breach of a common-law or statutory duty that would independently form the basis for a negligence claim against the contractor. We are unable to resolve that question from the record now before us.

Factual and Procedural Background

In 1998, Scott and Sherry David acted as their own general contractor in order to build a home in Tampa, Kansas. They intended to live in the house once it was completed and were not building it to sell to a third party. They performed some work themselves, such as framing, roofing, and finishing; but hired contractors for other aspects of the endeavor.

The Davids had no prior experience acting as general contractors on a home construction project. At their request, they received a written bid from David Hett d/b/a/ Hett Construction for the excavation, basement, and concrete work called for in the plans and specifications supplied by the Davids. Scott orally accepted Hett's written bid, which is not part of the record on appeal.

It is uncontroverted that the parties orally agreed to modify the plans and specifications prior to Hett beginning work, although it is disputed whether the changes they agreed to included the dimensions for concrete footings and other foundation work beneath the structure. The Davids claim Hett represented that his concrete and foundation work would be performed as described in the original plans, specifications, and drawings. Hett counters that he advised the Davids that he had never before installed the 30–inch deep footings on a residential basement as shown on the plans and would instead pour a 12–inch footing, as he had always done. It is uncontroverted that the Davids accepted Hett's completed work in 1998 and paid him approximately $20,000—although they claim they never inspected what Hett did.

In 2003, the Davids began experiencing unusual settling in their home's garage and basement areas. In 2005, they sued Hett for breach of contract, negligence, fraud, fraudulent concealment, and violation of the Kansas Consumer Protection Act, K.S.A. 50–623 et seq. They claimed Hett negligently failed to perform the contractually required work by not installing the footings according to the building plans; used wet and loose fill material; did not encase the drain tile in gravel, which caused it not to function properly; and caused a significant void under the porch that extended along a portion of the driveway slab, the full length of the garage floor, and beyond the back of the house. The lawsuit sought actual damages “in order to bring the house into compliance with the plans, specifications and drawings that were originally agreed upon between the plaintiffs and defendant as the proper construction for [the] house.” The Davids also demanded attorney fees and costs.

When discovery closed in the district court proceedings, Hett moved for summary judgment and the Davids failed to timely file the required statement indicating whether each factual contention set out in Hett's motion was controverted. See Supreme Court Rule 141(b) (2010 Kan. Ct. R. Annot. 228). As a consequence, the district court properly treated Hett's statement of uncontroverted facts as admissions by the Davids when addressing Hett's motion. See Ruebke v. Globe Communications Corp., 241 Kan. 595, 604, 738 P.2d 1246 (1987) (opposing party admits the uncontroverted facts set forth in the movant's statements by failing to comply with the rule). These admissions effectively devastated many of the Davids' claims. As the Court of Appeals observed, “Persons who fail to comply with Supreme Court Rule 141 do so at their peril.” David v. Hett, No. 98,419, ––– Kan.App.2d ––––, 2008 WL 4849147, at *2 (Kan.App.2008) (unpublished opinion).

In its straightforward and well-reasoned decision, the district court granted summary judgment in Hett's favor on all claims. The court found the contract allegations and action under the Kansas Consumer Protection Act were barred by the statute of limitations. The court also held that the uncontroverted facts demonstrated Hett made no untrue statements nor took any action with intent to deceive the Davids, which were essential elements to plaintiffs' fraud counts, so those claims failed as well.

As to the negligence allegations of interest in this appeal, the district court held that the economic loss doctrine prevented the Davids from bringing a tort action under circumstances governed by contract. As to this holding, the district court adhered to the Court of Appeals' decision in Prendiville v. Contemporary Homes, Inc., 32 Kan.App.2d 435, 83 P.3d 1257, rev. denied 278 Kan. 847 (2004). The district court also held that the economic loss doctrine supplied an additional bar to plaintiffs' fraud claims. The Davids timely appealed. The Court of Appeals affirmed the district court's decision in all respects. David, 2008 WL 4849147.

Plaintiffs sought review from this court on each adverse determination. But we accepted the appeal only to decide whether the economic loss doctrine barred any negligence claims. Our jurisdiction arises under K.S.A. 20–3018(b) (review of a Court of Appeals' decision). This court has never before considered the economic loss doctrine in any context, including product liability actions where the doctrine originated.

Standard of Review

Appellate review of an order granting summary judgment is unlimited when there is no factual dispute. Polson v. Farmers Ins. Co., 288 Kan. 165, Syl. ¶ 1, 200 P.3d 1266 (2009). In addition, determining whether the economic loss doctrine applies in a case is an issue of law subject to unlimited appellate review. Koss Construction v. Caterpillar, Inc., 25 Kan.App.2d 200, 201, 960 P.2d 255, rev. denied 265 Kan. 885 (1998); Insurance Co. of North America v. Cease Electric, Inc., 276 Wis.2d 361, 369, 688 N.W.2d 462 (2004) (“[The economic loss doctrine's] application to a set of facts also presents a question of law subject to independent appellate review.”); see also Wilkinson v. Shoney's, Inc., 269 Kan. 194, 203, 4 P.3d 1149 (2000) (whether to recognize a new common law cause of action is a question of law subject to unlimited review).

Analysis

The economic loss doctrine is a creation of modern product liability law. Sapp v. Ford Motor Co., 386 S.C. 143, 147, 687 S.E.2d 47 (2009). It is described generally as “a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.” Indemnity Ins. Co. v. American Aviation, 891 So.2d 532, 536 (Fla.2004).

Much is written in the nation's caselaw, scholarly journals, and other secondary sources about the economic loss doctrine. Its wide-ranging impact and the frequent challenges to its boundaries have caused several commentators to note the “vast confusion over this area of the law.” See Note, Drowning in a Sea of Confusion: Applying the Economic Loss Doctrine to Component Parts, Service Contracts, and Fraud, 84 Wash. U.L.Rev. 1513, 1513 (2006). In one sense, the “economic loss doctrine” or “economic loss rule” is a well-recognized tort concept, but a review of the caselaw across various jurisdictions shows it has proven difficult to define because there are a number of permutations. Johnson, The Boundary–Line Function of the Economic Loss Rule, 66 Wash. & Lee L.Rev. 523, 524 (Spring 2009).

In light of this, and because the economic loss doctrine is an issue of first impression for this court, our holding is best explained if we discuss the subject matter in the following progression: (1) A brief discussion about...