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Long Trail House Condominium Association v. Engelberth Construction

September 28, 2012


On Appeal from Superior Court, Windham Unit, Civil Division

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

Long Trail House Condominium Association v. Engerberth Construction, Inc. (2011-345)

2012 VT 80

Supreme Court

PRESENT: Skoglund and Burgess, JJ., and Kupersmith and Davenport, Supr. JJ., and Johnson, J. (Ret.), Specially Assigned

¶ 1. This litigation stems from the construction of a 143-unit condominium complex known as the Long Trail House at Stratton Mountain, Vermont. Plaintiff Long Trail House Condominium Association appeals from the trial court's order granting summary judgment to defendant general contractor Engelberth Construction, Inc. on its complaint. The Association argues that the court erred in: (1) applying the economic loss rule to bar its negligence claim; and (2) dismissing its breach of implied warranty claim. We affirm.

¶ 2. In granting judgment to Engelberth, the trial court relied on the following undisputed facts. In January 1997, Stratton Corporation and Engelberth entered into a preconstruction agreement, which articulated preconstruction terms and services that Engelberth would supply to Stratton. This included recommendations on construction feasibility, consultation as to the selection of materials and equipment, assistance with zoning requirements and permits, and cooperation with the "design team" to provide valuable engineering services. Engelberth specifically disclaimed any "responsibility to ascertain that the Drawings and Specifications [were] in accordance with applicable laws, statutes, ordinances, building codes, rules and regulations," and disclaimed responsibility for the design team's designs, errors, or omissions.

¶ 3. In March 1998, the Stratton Corporation and Intrawest Corporation (collectively "Stratton") and Engelberth entered into a standard owner and contractor form agreement with modified general conditions, outlining the scope and terms of the project. This contract explicitly stated that it represented "the entire and integrated agreement between the parties hereto and supersede[d] prior negotiations, representations or agreements, either written or oral." The agreement provided that the contract documents "shall not be construed to create a contractual relationship of any kind" between anyone other than the owner and contractor.

¶ 4. The Long Trail House Condominium Association was incorporated in March 1999. Following completion of the construction project, it notified Stratton of alleged defects. Condominium owners had at first experienced minor problems, such as water leakage. Structural engineers, however, found significant further damage that would likely lead to personal property loss and personal injury if not promptly remediated. This included: (1) water penetrating exterior walls; (2) improperly supported trusses, which could lead to roof collapse; (3) severe water damage to the balconies, which could result in their collapse within a year; (4) unsupported load-bearing walls that could collapse; and (5) improperly braced gable end walls in the roof area of both the North and South building that could collapse in a high wind event. The Association asserted that Stratton was responsible for repairing the damaged elements of the complex.

¶ 5. In May 2007, Stratton, Intrawest, and the Association entered into a "Settlement Agreement and Release of Claims" pursuant to which the parties settled the Association's design and construction defect claims for $7,025,000. The agreement required Intrawest to pursue a claim against Engelberth "to recover part or all of the payment paid to the Association under the Agreement." Stratton subsequently sued Engelberth, alleging that Engelberth was responsible for the construction defects in the buildings, the bulk of which were caused by water damage stemming from leaks throughout the building as a result of alleged faulty workmanship. As of March 2012, the Stratton/Engelberth case was still in the discovery phase.

¶ 6. The Association thereafter retained contractors to conduct extensive remediation work. This work cost approximately $1,500,000 more than the settlement amount. In October 2008, the Association sued Engelberth, alleging that Engelberth was negligent in constructing the project and breached express and implied warranties by failing to construct and repair the project in a good workmanlike manner free of defects. The defects alleged by the Association mirrored those in Stratton's lawsuit, and included additional defects in the buildings' HVAC and electrical systems.

¶ 7. Based on these undisputed facts, the court concluded that Engelberth was entitled to summary judgment in its favor. As discussed in additional detail below, it concluded that the Association's negligence claim was barred by the economic loss rule and that the absence of contractual privity was fatal to the warranty claims. This appeal followed.

¶ 8. On review, we apply the same standard as the trial court. Richartv. Jackson, 171 Vt. 94, 97, 758 A.2d 319, 321 (2000). Summary judgment is appropriate when, taking all allegations made by the nonmoving party as true, there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. V.R.C.P. 56(c); Richart, 171 Vt. at 97, 758 A.2d at 321. We conclude that summary judgment was properly granted to Engelberth here.

I. Negligence and the Economic Loss Rule

¶ 9. We begin with the Association's negligence claim. In its complaint, the Association alleged that Engelberth owed it a duty to use "professional care" in performing general contractor services and in constructing the project, and that Engelberth could foresee with reasonable certainty that the Association would be injured by its failure to do so. According to the Association, Engelberth was careless and negligent in the performance of its duties, and failed to use the reasonable care, skill, and ability ordinarily required of general contractors. The Association alleged that as a result of Engelberth's negligence, it incurred significant cost and expense to remedy the defects resulting from Engelberth's failure to properly construct and/or repair defects in construction of the project.

¶ 10. The trial court concluded that the economic loss rule barred the Association's negligence claim. We agree. The economic loss rule "prohibits recovery in tort for purely economic losses." 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. As we have 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. Id. (citations omitted); see also Gus' Catering, Inc. v. Menusoft Sys., 171 Vt. 556, 558, 762 A.2d 804, 807 (2000) (mem.) ("Negligence law does not generally recognize a duty to exercise reasonable care to avoid intangible ...

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