Sommer v. Federal Signal Corp.

• Decision Date: 12 May 1992
• Citation: Sommer v. Federal Signal Corp., 79 N.Y.2d 540, 583 N.Y.S.2d 957, 593 N.E.2d 1365 (N.Y. 1992)
• Parties: , 593 N.E.2d 1365 Beverly SOMMER et al., Respondents-Appellants, v. FEDERAL SIGNAL CORPORATION et al., Respondents-Appellants, and Holmes Protection, Inc., Appellant-Respondent, et al., Defendant. (And a Third-Party Action and All Related Consolidated Actions.)
• Court: New York Court of Appeals Court of Appeals

Page 957

583 N.Y.S.2d 957

79 N.Y.2d 540, 593 N.E.2d 1365

Beverly SOMMER et al., Respondents-Appellants, v. FEDERAL SIGNAL CORPORATION et al., Respondents-Appellants and Holmes Protection, Inc., Appellant-Respondent, et al., Defendant (And a Third-Party Action and All Related Consolidated Actions.)

Court of Appeals of New York.

May 12, 1992.

[79 N.Y.2d 543] [593 N.E.2d 1367]

Kenneth Kirschenbaum, Ira Levine, Garden City, and Steven L. Alter, New York City, for appellant-respondent.

[79 N.Y.2d 544] Charles J. Moxley, Jr., Michelle J. France, Gareth D. Bye and Peter M. Christel, New York City, for Beverly Sommer et al., respondents-appellants.

[79 N.Y.2d 546] Chester J. Wrobleski, Elizabeth T. Marren and Brian D. Pattison, New York City, for Infotech Management, Inc., et al., respondents-appellants.

[79 N.Y.2d 547] Randall S.D. Jacobs, and Robert J. Fryman, New York City, for Walker Thomas Associates, Ltd., respondent-appellant.

[79 N.Y.2d 548] John F. Triggs, New York City, for Federal Signal Corporation et al., respondents-appellants.

OPINION OF THE COURT

KAYE, Judge.

This appeal, in consolidated actions against a fire alarm company for negligent services resulting in extensive property damage, centers on an exculpatory clause in the company's contract with its customer. For the reasons that follow, we conclude that the clause would not bar recovery by the customer for the company's grossly negligent conduct; that an issue of fact regarding gross negligence precludes summary judgment for the company; and that, as to the contribution claims asserted against the company, some should be conditionally reinstated while others were properly dismissed.

I.

In 1985, 810 Associates owned a 42-story skyscraper in midtown Manhattan. As required by local law, the building was equipped with a central station fire alarm system. 810 contracted with Holmes Protection, Inc. to provide central station monitoring service--meaning that at its central station Holmes would receive any alarms sounded on 810's premises and immediately notify the fire department.

On the morning of Saturday, April 13, an 810 employee called Holmes to ask that the alarm system be deactivated because of work being done at the building. When Holmes temporarily takes a subscriber's system out of service, or deactivates the system, Holmes continues to receive signals but simply does not report them to the fire department. In these circumstances, additionally, Holmes' practice is to restore normal service within several hours unless the subscriber directs otherwise. Thus, Holmes deactivated 810's system on Saturday morning as requested, and reactivated it on Saturday night.

On Monday morning, April 15, 810's chief engineer, unaware that service had already been restored, telephoned Holmes to request reactivation. Holmes' dispatcher--allegedly an untrained, inexperienced substitute--initially understood that 810 wanted normal service restored. But as the brief conversation proceeded, the dispatcher became confused by the caller's repeated insistence that he would "activate" the system and the dispatcher concluded--without attempting to elicit greater clarification from the caller, or any other confirmation--that 810 wanted its system taken out of service.

Seven to nine minutes later, Holmes began receiving fire signals from the building. However, consistent with his mistaken impression that the system was to be taken out of service, the dispatcher simply assumed that he should ignore those signals. In fact, a four-alarm fire had started on the 28th floor, which was reported directly to the fire department by others--but not until minutes after the signals were first received by Holmes.

A spate of lawsuits followed. 810 sued Holmes and others connected with its fire detection system--designers, manufacturers, parts suppliers, installers, inspectors--for damages exceeding $7 million, on the theory that a small, containable fire had spread out of control because the fire detection system failed to timely detect the fire, and spread even further because of Holmes' failure to transmit the alarm to the fire department. Tenants sued 810, Holmes and other alarm-related entities, and 810 and the alarm defendants sought contribution from Holmes.

The actions were consolidated, and after discovery Holmes sought summary judgment dismissing all claims. As an affirmative defense against 810's negligence and breach of contract causes of action, Holmes relied on a contractual exculpatory clause which provided:

"Holmes shall not be liable for any of [810's] losses or damages * * * caused by performance or non-performance of obligations imposed by this contract or by negligent acts or omissions by Holmes."

Alternatively, Holmes relied on a contract clause that limited its liability to the lesser of $250 or 10% of the annual service charge "as liquidated damages."

Although concluding that the exculpatory clause would be unenforceable if Holmes was grossly negligent, Supreme Court characterized the circumstances of April 15 as merely a "misadventure, flowing from a high water mark of mis-communication," presenting no triable issue of gross negligence, and it dismissed 810's claims against Holmes. ¹ The court also dismissed the tenants' claims and all contribution claims against Holmes, finding that none of the parties asserting those claims were third-party beneficiaries of the 810/Holmes contract or otherwise owed a duty by Holmes.

Taking a different view of the evidence, the Appellate Division held that there was a triable issue of fact as to Holmes' gross negligence, and further ordered that the contribution claims be reinstated should Holmes be found grossly negligent at trial. 174 A.D.2d 440, 571 N.Y.S.2d 228. While agreeing with the Appellate Division on the issue of gross negligence, we conclude that the court erred in its contribution analysis and therefore modify the order and answer the certified questions in the negative.

II.

Initially, we must determine whether 810 may pursue tort claims against Holmes, or is limited to breach of contract remedies. Holmes argues that its duties to 810 arose solely from its contractual undertaking and thus this case at most presents a breach of contract. 810 counters that grossly negligent fire alarm service threatens life and property and is actionable under traditional tort law. Resolution of this threshold issue affects the negligence claims and the availability of contribution.

Some claims plainly sound in tort--for example, the case of a pedestrian struck by a careless driver. Others are clearly contract, like the case of the merchant who fails to deliver goods as promised. In the former case, the duty breached--to drive carefully--is one not imposed by contract but by law as a matter of social policy (see, Prosser, Torts, at 613 [4th ed]. In the latter, the duties arise solely from the parties' consensual undertaking (id.).

This case partakes of both categories, and thus falls in the borderland between tort and contract, an area which has long perplexed courts. As we observed more than a century ago:

"Between actions plainly ex contractu and those as clearly ex delicto there exists what has been termed a border-land, where the lines of distinction are shadowy and obscure, and the tort and the contract so approach each other, and become so nearly coincident as to make their practical separation somewhat difficult."

(Rich v. New York Cent. & Hudson Riv. R.R. Co., 87 N.Y. 382, 390; see also, Matter of Paver & Wildfoerster [Catholic High School Assn.], 38 N.Y.2d 669, 678, 382 N.Y.S.2d 22, 345 N.E.2d 565; Prosser, Selected Topics on the Law of Torts, ch. VII, The Borderland of Tort and Contract [1953] [hereinafter Borderland]; Note, The Elastic Concept of Tort and Contract As Applied By the Courts of New York, 14 Brooklyn L.Rev. 196 [1948].)

These borderland situations most often arise where the parties' relationship initially is formed by contract, but there is a claim that the contract was performed negligently. That is the case here. Holmes owed no duty to 810 prior to their contract; once they had contracted, however, Holmes had certain obligations to 810, including a duty to make timely reports to the fire department. The question is whether Holmes' failure to report, allegedly the result of negligence, is a breach of contract, a tort, or both.

Though the line separating tort and contract claims may be elusive, the classification can be consequential, affecting for example the applicable Statute of Limitations, requisite proof and measure of damages. In the present case, classification of 810's claims bears most directly on the availability of contribution.

This Court has identified several guideposts for separating tort from contract claims.

In North Shore Bottling Co. v. Schmidt & Sons, 22 N.Y.2d 171, 179, 292 N.Y.S.2d 86, 239 N.E.2d 189, we recognized that "a contracting party may be charged with a separate tort liability arising from a breach of a duty distinct from, or in addition to, the breach of contract." A tort may arise from the breach of a legal duty independent of the contract, but merely alleging that the breach of contract duty arose from a lack of due care will not transform a simple breach of contract into a tort (Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190, Rich v. New York Cent. & Hudson Riv. R.R. Co., 87 N.Y., at 398, supra).

A legal duty independent of contractual obligations may be imposed by law as an incident to the parties' relationship. Professionals, common carriers and bailees, for example, may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties (Rich v. New York Cent. & Hudson Riv. R.R. Co., 87 N.Y., at 399, supra; Prosser, Borderland, op. cit., at 402-405). In these instances, it is policy, not the parties' contract, that gives rise to a duty of...