Entergy Gulf States Inc. v. Akrotex Inc.

• Decision Date: 12 April 2001
• Parties: (Tex.App.-Beaumont 2001) ENTERGY GULF STATES, INC. f/k/a GULF STATES UTILITIES COMPANY, Appellant v. AKROTEX, INC., Appellee NO. 09-99-547 CV
• Court: Texas Court of Appeals

Page 201

40 S.W.3d 201 (Tex.App.-Beaumont 2001)

ENTERGY GULF STATES, INC. f/k/a GULF STATES UTILITIES COMPANY, Appellant v. AKROTEX, INC., Appellee

NO. 09-99-547 CV

In The Court of Appeals Ninth District of Texas at Beaumont.

Submitted January 11, 2001.

Delivered April 12, 2001.

On Appeal from the 128th District Court Orange County, Texas Trial Cause No. A 960034-C

Before Walker, C.J., Burgess and Hill ¹, JJ.

OPINION

HILL, Justice (Assigned).

Entergy Gulf States, Inc. f/k/a Gulf States Utilities Company, appeals from a judgment resulting from a jury verdict in favor of Akrotex, Inc. In a sole issue, Entergy asserts the trial court erred by submitting Akrotex's claim under negligence, when it has no common-law duty to connect and inspect Akrotex's electric service and meter and where the damages are purely economic.

We reverse the judgment and render that Akrotex take nothing by its suit and that costs of court are charged to Akrotex, because Akrotex has waived any recovery for breach of contract by not submitting such claim to the jury and because the only duty breached by Entergy was a duty arising out of its contract to exercise due care in the connection of electric service, not from any independent duty that would give rise to tort liability.

Akrotex is a collector, reprocessor, and seller of plastic. In 1994, Akrotex added additional electrical service because it was putting in a new plastic extruder. The service consisted of a new circuit breaker and two conduits. When Entergy provided electrical service to the new equipment, the connection was made in such a way that the service was out of phase, resulting in abnormally low usage readings. Akrotex attributed the lower electrical usage to its installation of the new extruder. Based upon that assumption, Akrotex committed to sell an older extruder. Originally, Akrotex would have had its older extruder back on line, but its belief that the energy savings was caused by a new extruder delayed its getting a second extruder line in production for several months. The damages Akrotex sought and recovered are lost profits resulting from the delay in getting the production on line.

Akrotex brought an action for violation of the Deceptive Trade Practices Act, breach of contract, and negligence. It waived its cause of action under the D.T.P.A., as well as the breach of contract, and submitted its case to the jury solely on negligence. Akrotex pleaded that Entergy was negligent by: (1) failing to properly train and supervise its employees regarding the proper manner of connecting three-phase electrical service; (2) failing to properly train and supervise and have proper policy in place regarding the need for checking connections within the connection box at time of installation of service to insure that the connection is not cross phased or shorted; (3) failing to properly connect electrical service to Akrotex's building; (4) failing to properly inspect the metering device to accurately determine the electrical consumption within a reasonable time; and (5) failing to find its error in connection and metering until after four months of use.

Entergy contends in its sole issue that any claim Akrotex might have is a contract claim, not a tort claim, and that Akrotex waived any claim it might have had for breach of contract. The contractual relationship of parties may create duties under both contract and tort law. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). "The acts of a party may breach duties in tort or contract alone or simultaneously in both. The nature of the injury most often determines which duty or duties are breached. When the injury is only the economic loss to the subject of the contract itself, the action sounds in contract alone." Id. See also Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991). Loss of profits caused by a negligent performance of a contract is an economic loss to the subject of the contract itself and does not constitute a tort. See id. We therefore hold that Akrotex's claim for lost profits caused by Entergy's negligent performance of its contract to establish electrical service does not constitute a tort.

Akrotex contends that its claim is a tort, relying upon the principle recognized in DeLanney that, "'Accompanying every contract is a common-law duty to perform with care, skill, reasonable expedience and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort, as well as a breach of the contract.'" Id. at 494 (quoting Montgomery Ward v. Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508, 510 (1947)). However, after recognizing that principle, the court held that, "[I]f the defendant's conduct--such as negligently burning down a house--would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff's claim may also sound in tort. Conversely, if the defendant's conduct--such as failing to publish an advertisement--would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract." Id.

Akrotex relies in part upon the case of Thomson v. Espey Huston & Assoc., Inc., 899 S.W.2d 415 (Tex. App.--Austin 1995, no writ), a case involving the construction of an apartment complex. Id. at 417. In Thomson, the court overruled points of error concerning a portion of a summary judgment that denied recovery where the defendant's negligence caused no injury other than economic injury to the subject of the contract itself. Id. at 421-22. The court sustained points of error relating to the portion of the summary judgment denying recovery for a claim that negligence in designing the drainage system and in testing soil quality caused damage to other parts of the apartment complex. Id. at 422. In doing so, the court noted the defendant had a duty independent of the contract not to negligently damage the plaintiff's property or that of his neighbors. Id.

Previously in its opinion, the Thomson court had referred to the portion of DeLanney that summarized and reaffirmed the rationale of Scharrenbeck, 204 S.W.2d at 508, a case in which the defendant repaired a home water heater that later malfunctioned, causing a fire that destroyed the house and its contents. Thomson, 899 S.W.2d at 421. The Supreme Court said in DeLanney that although the defendant in Scharrenbeck had a contractual duty to put the water heater back in good working order, the law also implied a duty to the defendant to act with reasonable skill and diligence in making the repairs so as not to injure a person or property by his performance. DeLanney, 809 S.W.2d at 494.

The Thomson court also referred to an Illinois case, 2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346 (Ill. 1990). In that case the court answered a certified question to the effect that there was no recovery in tort against an architect for negligence for purely economic loss. Id. at 350-51. The court defined "economic loss" as "'damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits -- without any claim of personal injury or damage to other property...as well as the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.'" Id. at 348 (quoting Moorman Mfg. Co. v. Nat'l Tank Co., 435 N.E.2d 443 (Ill. 1982)). We find the case at bar is distinguishable from both Thomson and Scharrenbeck because in this case Akrotex's claim is solely for economic loss and does not involve a claim for personal injury or damage to property, whether the subject of the contract or otherwise. We find that 2314 Lincoln Park West, the Illinois case cited by the court in Thomson, supports our conclusion for that reason.

Akrotex appears to suggest that Entergy's duty arose outside the contract because Entergy's tariff referred to the providing of electric service, while its complaints relate to negligence in Entergy's connection of electrical service. We do not understand, however, that Akrotex is maintaining that it did not have an agreement with Entergy that it was going to connect its lines with those of Akrotex as a part of its providing electrical service. Akrotex had such an agreement with Entergy, whether it is specifically mentioned in the tariff or not. We therefore disagree with Akrotex's conclusion that whatever duty Entergy had did not arise from its agreement with Akrotex.

As part of its discussion regarding whether its damages arose from its contract with Entergy, Akrotex relies upon the case of Parks v. DeWitt County Elec. Coop., Inc., 962 S.W.2d 707 (Tex. App.--Corpus Christi 1998), rev'd in part and remanded in part, 1 S.W.3d 96 (Tex. 1999). In that case, DeWitt County Elec. Coop. had an easement over the plaintiff's property for its electrical lines. Id. at 709. The Cooperative entered onto the plaintiff's land and cut trees so as to keep their limbs clear of its lines. Id. The plaintiff sued on several theories, including negligence. Id. The court held that the trial court should not have granted a directed verdict as to plaintiff's claim of negligence because there was evidence that the Cooperative's conduct in entering the plaintiff's property and cutting the plaintiff's trees, if negligent, would give rise to liability even if no contract existed and because the damages were the replacement value of the trees rather than the value of the easement, which was the subject matter of the contract. Id. at 712. However, this case was subsequently reversed as to this issue by the Texas Supreme Court, which held that the contract between the parties setting forth the parties' rights as to whether trees might be cut governed disputes as to whether trees could be cut or how they were cut. See DeWitt County Elec. Coop., 1...