Determan v. Johnson

• Decision Date: 06 July 2000
• Docket Number: No. 98-2050.,98-2050.
• Parties: Lisa A. DETERMAN, Appellant, v. James H. JOHNSON and Diane V. Johnson, Appellees.
• Court: Iowa Supreme Court

613 N.W.2d 259

Lisa A. DETERMAN, Appellant, v. James H. JOHNSON and Diane V. Johnson, Appellees.

No. 98-2050.

Supreme Court of Iowa.

July 6, 2000.

Randall E. Nielsen of Pappajohn, Shriver, Eide & Nicholas, P.C., Mason City, for appellant.

David L. Riley of Yagla, McCoy & Riley, P.L.C., Waterloo, for appellees.

Considered en banc.

TERNUS, Justice.

The appellant/plaintiff, Lisa Determan, discovered significant structural problems in the home she had purchased from the appellees/defendants, James and Diane Johnson. Determan filed a negligence action against the defendants to recover her costs of repair, but the trial court dismissed her claims on the basis that the defendants owed no duty to the plaintiff. The court of appeals affirmed, holding that the plaintiff's damages were not recoverable under tort law. This court granted further review and we now affirm.

I. Background Facts and Proceedings.

In 1990, the defendants decided to build a home for themselves. They did not have any house plans; they simply took pictures from a magazine to the local lumberyard and asked that plans be prepared. These plans were then submitted to the city for a building permit. Defendant James Johnson, a farmer and used-car dealer, listed himself as the contractor on the application for the permit. The defendants hired a local carpenter, however, to do the actual construction. When the house was completed, the defendants and their children moved in.

In 1992, the defendants decided to sell their home and listed it for sale at a price of $190,000. The plaintiff and her then-husband, Jeffrey Determan, were interested in purchasing the home but had concerns about the quality of the workmanship. After receiving some reassurances from their real estate agent, the Determans bought the house for $120,000. The purchase agreement contained the following language:

BUYERS acknowledge that they have made a satisfactory inspection of the property and are purchasing the property in its existing condition.

The BROKER, its agents, employees, and associates make no representations or warranties as to the physical or mechanical condition of the property, size, value, future value or income potential.

In 1997, after the Determans' divorce, the plaintiff discovered a sag in the roof of the house. Further investigation, which included consultations with a local home-builder, an architect, and a structural engineer, revealed serious structural problems in the home. Specifically, the beam system supporting the roof was inadequate and did not comply with the applicable building code. In addition, a vapor barrier had not been properly installed, resulting in significant moisture problems. The plaintiff's consultants indicated that the roof could be in danger of collapsing.

The plaintiff then filed this action against the defendants seeking recovery under several different negligence theories.¹ She sought to recover "repair costs, loss of use, inconvenience, emotional distress, and mental pain and suffering." The case proceeded to trial. At the close of the evidence, the defendants moved for a directed verdict on several grounds, including that they owed no duty to the plaintiff and that her recovery was limited to contract remedies. With one exception, the district court granted the defendants' motion on all of the plaintiff's claims, holding the defendants owed no duty to the plaintiff. The only claim remaining was the plaintiff's assertion that the defendants had fraudulently failed to disclose that a substantial portion of the wastewater treatment system extended beyond the property line. This claim was submitted to the jury, which returned a verdict in favor of the plaintiff, awarding damages in the amount of $8800. Judgment was entered on the jury's verdict, and neither party has challenged this judgment on appeal.

The plaintiff appealed the trial court's ruling on the defendants' motion for directed verdict, claiming there was sufficient evidence to establish that the defendants owed her a duty. We transferred the appeal to the Iowa Court of Appeals, which affirmed the district court on the basis that the plaintiff had no tort remedy for her damages. See Moyer v. City of Des Moines, 505 N.W.2d 191, 193 (Iowa 1993)

(holding that an appellate court may affirm on any ground "urged in the district court but not considered by that court"). Upon the plaintiff's request, we granted further review. Because we agree with the court of appeals that the plaintiff cannot recover under tort law, we do not address the issue of duty.

II. Scope of Review.

Our standard of review for the grant of a motion for directed verdict is well established:

We review the trial court's decision to direct a verdict for the correction of errors of law. A defendant's motion for directed verdict should be denied if there is substantial evidence to support the plaintiff's claim. "Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion."

Hasselman v. Hasselman, 596 N.W.2d 541, 545 (Iowa 1999) (citations omitted) (quoting Johnson v. Dodgen, 451 N.W.2d 168, 171 (Iowa 1990)). Our role, then, is to determine "whether the trial court correctly determined that there was insufficient evidence to submit the issue ... to the jury." Id.

III. Governing Law.

This court has on several occasions in the past considered the compensability of economic loss damages in tort. It is helpful to briefly review this line of cases in deciding the appropriate outcome here.

We first addressed this issue in Nebraska Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124 (Iowa 1984). In that case this court adopted the general rule that a plaintiff "cannot maintain a claim for purely economic damages arising out of [a] defendant's alleged negligence." Nebraska Innkeepers, 345 N.W.2d at 128.

In a subsequent decision, we extended this rule to bar claims based on strict liability in tort where a product sold by the defendant to the plaintiff failed to perform as it was expected, but caused no physical injury to person or property. Nelson v. Todd's Ltd., 426 N.W.2d 120, 123 (Iowa 1988). We refined the Nebraska Innkeepers rule by stating:

We agree that the line to be drawn is one between tort and contract rather than between physical harm and economic loss.... When, as here, the loss relates to a consumer or user's disappointed expectations due to deterioration, internal breakdown or non-accidental cause, the remedy lies in contract.

Tort theory, on the other hand, is generally appropriate when the harm is a sudden or dangerous occurrence, frequently involving some violence or collision with external objects, resulting from a genuine hazard in the nature of the product defect.

Id. at 125 (citation omitted). In deciding whether a particular claim is cognizable in tort or contract, we quoted with approval the following analysis suggested by a federal court of appeals:

"[T]he line between tort and contract must be drawn by analyzing interrelated factors such as the nature of the defect, the type of risk, and the manner in which the injury arose. These factors bear directly on whether the safety-insurance policy of tort law or the expectation-bargain protection policy of warranty law is most applicable to a particular claim."

Id. at 124-25 (quoting Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1173 (3rd Cir.1981)).² Notwithstanding our adherence to this multi-factor test, we have required at a minimum that the damage for which recovery is sought must extend beyond the product itself. Compare Flom v. Stahly, 569 N.W.2d 135, 141 (Iowa 1997)

(holding plaintiff's claim was contractual in nature because harm caused by defect was limited to product), with American Fire & Cas. Co. v. Ford Motor Co., 588 N.W.2d 437, 438-39 (Iowa 1999) (permitting tort recovery where defect caused a sudden and dangerous occurrence causing damage not only to the product but to other property as well).

The distinction drawn in Nelson between tort claims and contract claims based on a defective product is illustrated by two of our cases in which we have applied the legal principles set forth in Nelson, but have reached differing results. Compare Tomka v. Hoechst Celanese Corp., 528 N.W.2d 103 (Iowa 1995),

with American Fire, 588 N.W.2d at 437. We will briefly discuss these cases now.

In Tomka, the plaintiff operated a custom feeding operation. 528 N.W.2d at 105. He sued the manufacturer of a growth hormone given to cattle that the plaintiff had contracted to feed to market weight. Id. The plaintiff claimed that the cattle did not gain weight as quickly as they should have and, as a result, it took the plaintiff longer to raise the cattle to a saleable weight. Id. As a consequence of the extended feeding period, the plaintiff's expenses were greater and he lost money on his custom feeding contracts. Id. Applying the rule set forth in Nelson, we held that the plaintiff could not recover under tort theories of liability because the product simply failed to do what it was supposed to do—promote the cattle's growth. Id. at 107. We noted that "contract law protects a purchaser's expectation interest that the product received will be fit for its intended use." Id.

In contrast, in American Fire, we permitted a tort recovery when the defect in the product—a truck—caused a fire that damaged the truck and its contents. 588 N.W.2d at 438. We observed that "tort theory is generally available when the harm results from `a sudden or dangerous occurrence, frequently involving some violence or collision with external objects, resulting from a genuine hazard in the nature of the product defect.'" Id. at 439 (emphasis omitted) (quoting Nelson, 426 N.W.2d at 125).

With this framework to guide our analysis, we now consider the facts of the case before us.

IV. Application of Law to Facts.

In the present case the evidence introduced at trial showed that the house...