Springfield Hydroelectric Co. v. Copp

Springfield Hydroelectric Co. v. Copp (2000-044); 172 Vt. 311; 779 A.2d 67

[Filed 06-Jul-2001]   



       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.


                                No. 2000-044


Springfield Hydroelectric Company, et. al.	Supreme Court

                                                On Appeal from
     v.	                                        Chittenden Superior Court


Lawrence D. Copp and Jonathan Downer	        March Term, 2001


Matthew I. Katz, J.

       Mary P. Kehoe of Saxer Anderson Wolinsky & Sunshine PC, Burlington,
  for Plaintiffs-Appellants.

       Thomas F. Heilmann and D. James Mackall of Heilmann, Ekman &
  Associates, Inc., Burlington for Defendants-Appellees.


PRESENT:  Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and
          Allen, C.J. (Ret.), Specially  Assigned


       AMESTOY, C.J.   Appellants Springfield Hydroelectric Company, et. al.,
  appeal the  superior court's summary judgment ruling on behalf of appellees
  Lawrence Copp and Jonathan  Downer, former employees of Vermont Power
  Exchange (VPX).  Appellants, all owners of  commercial hydroelectric
  facilities, allege that appellees in their individual capacities
  negligently  administered a power purchase agreement which resulted in
  shared economic damages.  The trial  court granted appellees' motion for
  summary judgment, ruling that appellants' claims fall within the  scope of
  the economic loss rule, prohibiting tort recovery for purely economic
  losses. We affirm.

 

       Between 1984 and 1996, VPX (FN1) served as the designated purchasing
  agent for  Vermont's Public Service Board (PSB), administering the sale of
  hydroelectric power from small  power producers to retail utility companies
  in Vermont.  To perform this function, VPX entered into  power purchase
  agreements with each of the appellants, owners of small commercial
  hydroelectric  generating facilities, and was paid a fee by them.

       Managing the construction and financial security concerns of new power
  producers to ensure  that they could meet the terms of the power sales
  agreements was among VPX's responsibilities. As  part of the scheme set up
  under the federal Public Utility Regulatory Policy Act of 1978 § 210, 16 
  U.S.C.A. § 824a-3 (2000), power producers qualify for "levelized rates,"
  which sometimes provide  them with compensation greater than the cost of
  production during the early years of a 30-year power  sales contract, and
  less compensation over later years.  In effect, the levelized rates operate
  as a loan  to producers.  

       In order to safeguard ratepayers against producers going out of
  business before the end of  their agreement, a pooled trust fund was set up
  to which all producers contributed a percentage of  their receipts.  The
  fund functioned to secure the power producers' performance of their
  agreements  with VPX, and to provide protection to Vermont ratepayers in
  the event that any of the producers  became insolvent during the 30-year
  levelized rate period.  Otherwise, the fund would be returned to  the
  producers.  One of VPX's duties was to administer the pooled trust fund. 
  The PSB, however,  maintained sole authority and control over disbursement
  of the fund, the authority to order payment 

 

  of proceeds into the fund, and the power to liquidate the fund in the event
  of a default by one of the  power producers.

       The appellants represent all of the participants in the pooled trust
  fund, with the exception of  Williams River, which, although not a party,
  is the subject of this action.  Williams River constructed  a hydroelectric
  facility, Brockways Mill, which produced power from March 1988 to November 
  1989.  Williams River subsequently defaulted, and shut down the Brockways
  Mill facility.  As a  result, the PSB ordered the monies from the pooled
  trust fund be disbursed.

       At the trial court, appellants alleged that appellees Copp and Downer,
  in their capacities as  officers or employees of VPX, acted as their agents
  in the administration of the power purchase  agreement with Williams River. 
  As such, appellants contended that defendants negligently rendered 
  professional services in permitting the facility to go "on-line," which,
  due to its subsequent  insolvency, resulted in the diminution of the trust
  fund by $161,144.

       Appellants sought damages for their reliance upon appellees'
  "negligently rendered  professional services," and asserted that appellees
  were negligent in their duty to exercise due care  under agency theory. 
  Appellees moved to dismiss the action, asserting that economic damages 
  cannot be recovered in tort actions. The trial court granted summary
  judgment to appellees, finding  the case to fall squarely within the
  economic loss doctrine.

       On appeal, appellants claim that: 1) the economic loss doctrine does
  not bar them from  recovery because they are not asserting economic loss;
  2) alternatively, in the event that the damages  requested are economic
  losses, the professional services exception to the economic loss rule
  permits  recovery; and 3) appellants and VPX entered into a principal/agent
  relationship in which VPX, as  agent, violated its duty of care.

 

       In reviewing a summary judgment ruling, we use "the same standard as
  the trial court," and  affirm the granting of a motion for summary judgment
  "if there are no genuine issues of material fact  and the moving party is
  entitled to judgment as a matter of law."  Granger v. Town of Woodford,  
  167 Vt. 610, 611, 708 A.2d 1345, 1346 (1998) (mem.); V.R.C.P. 56(c).

       Appellants first contend that the trial court erred in concluding that
  their claims were barred  under the economic loss rule, which prohibits
  recovery under tort for purely economic losses.  The  rule, as previously
  set forth in this Court, states that "[n]egligence law does not generally
  recognize a  duty to exercise reasonable care to avoid intangible economic
  loss to another unless one's conduct  has inflicted some accompanying
  physical harm."  Gus' Catering, Inc. v. Menusoft Systems, __ Vt.  __, __,
  762 A.2d 804, 807 (2000) (quoting O'Connell v. Killington, Ltd., 164 Vt.
  73, 77, 665 A.2d 39, 42 (1995)) (alteration in original).  The underlying
  premise of the economic loss rule is that  negligence actions are best
  suited for "resolving claims involving unanticipated physical injury, 
  particularly those arising out of an accident.  Contract principles, on the
  other hand, are generally  more appropriate for determining claims for
  consequential damage that the parties have, or could  have, addressed in
  their agreement." Spring Motors Distribs. v. Ford Motor Co., 489 A.2d 660,
  672  (N.J. 1985).  	

       As our caselaw makes clear, claimants cannot seek, through tort law,
  to alleviate losses  incurred pursuant to a contract.  In Gus' Catering, we
  denied the purchaser of defective computer  software its claims for lost
  business profits, customers, and time, stating, "plaintiff sought damages 
  for not having received the benefit of the bargain to which it believed it
  was entitled, and such a loss  of its disappointed commercial expectations
  is not recoverable under our negligence law." Gus'  Catering, __ Vt. at __,
  762 A.2d  at 807-08.  Similarly, in Paquette v. Deere & Co., 168 Vt. 258,
  263, 

  

  719 A.2d 410, 414 (1998), we denied the tort claims of purchasers of an
  allegedly defective motor  home, holding that their claims for purely
  economic damages for the reduced value of the home was  actionable under
  warranty rather than tort.  Again, we stated that the purchaser's "loss
  relates to their  disappointed commercial expectations, and thus is not
  recoverable under a theory of products  liability." Id.  See also Vermont
  Plastics, Inc. v. Brine, Inc., 824 F. Supp. 444, 449 (D. Vt. 1993); but 
  see Green Mountain Power Corp. v. General Elec. Corp., 496 F. Supp. 169,
  174 (D. Vt. 1980)  (finding liability for negligence resulting in economic
  loss should not necessarily be precluded as a  matter of policy).

       Appellants attempt to distinguish this case from our previous
  holdings, asserting that as  adopted by this Court, the economic loss rule
  applies only to products liability cases.  According to  appellants,
  "[e]conomic damages are damages for diminished commercial expectations
  associated  with a product." (Emphasis added).  However, the rule is not so
  narrow.  As articulated by the trial  court, the economic loss rule, though
  "deeply rooted in product liability law," has broader  application.  One
  court delineated the current application of the economic loss rule,
  stating,  "[a]lthough its initial development was in direct response to the
  emergence of strict liability in tort  theories, its application is now
  much broader as it serves today to maintain the boundary between  contract
  law and tort law."  Grynberg v. Agri Tech. Inc., 10 P.3d 1267, 1269 (Colo.
  2000); see also  Town of Alma v. AZCO Const., Inc., 10 P.3d 1256, 1259
  (Colo. 2000). For example, in Strickland-Collins Const. v. Barnett Bank,
  545 So. 2d 476, 477-78 (Fla. Dist. Ct. App. 1989), the court denied a 
  negligence claim for lender liability for failure to exercise greater
  control over a project and the  disbursement of funds. See also Grynberg,
  10 P.3d  at 1268 (applying economic loss rule to claims  that cattle
  investment program was designed and run improperly resulting in "less than
  a specified 

 

  rate of return");  Breslauer v. Fayston Sch. Dist., 163 Vt. 416, 421-22,
  659 A.2d 1129, 1133 (1995)  (denying negligence claim for economic losses
  for breach of employment contract);  East River  Steamship Corp. v.
  Transamerica Delaval, 476 U.S. 858, 870-71 (1986) (recognizing the economic 
  loss rule as applied to products liability under admiralty law).  The
  economic loss rule clearly applies  to commercial disputes outside the
  confines of product liability, and consequently to the instant  action.

       Appellants' attempt to recharacterize the damages they seek, asserting
  that they are not  economic damages but "compensation for the damages they
  were forced to pay to third parties," is  also unavailing.  "Economic loss
  is defined generally as damages other than physical harm to persons  or
  property." Town of Alma, 10 P.3d  at 1264.  Appellants here seek to be
  reimbursed for losses to  the trust which, absent Brockway Mills
  bankruptcy, would have been returned to them "according to  their
  respective contributions."  As the trial court aptly put it, "[h]owever
  stated, it is only money."    Because the damages which appellants seek are
  purely economic, the trial court was correct in  concluding that this case
  falls squarely within the economic loss doctrine.   See East River, 476 U.S.  at 870 ("by definition [if] no person or other property is damaged,
  the resulting loss is purely  economic").

       We have been careful to maintain a dividing line between contract and
  tort theories of  recovery.  Breslauer, 163 Vt. at 421, 659 A.2d  at 1133. 
  We also take note of recent decisions from  other jurisdictions which have
  begun to limit the broad application of the economic loss rule in  certain
  contexts.  See A. O'Brien, Limited Recovery Rule as a Dam: Preventing a
  Flood of Litigation  for Negligent Infliction of Pure Economic Loss, 31
  Ariz. L. Rev. 959, 962 (1989).  However, even  where courts have permitted
  recovery for economic loss, they have required a "special relationship 

 

  between the alleged tortfeasor and the individual who sustains purely
  economic damages sufficient to  compel the conclusion that the tortfeasor
  had a duty to the particular plaintiff and that the injury  complained of
  was clearly foreseeable to the tortfeasor."  Aikens v. Debow, 541 S.E.2d 576, 589  (W.Va. 2000).  The underlying analysis turns on whether there is
  "a duty of care independent of any  contractual obligations."  Grynberg, 10 P.3d  at 1269; Town of Alma, 10 P.3d  at 1262.  In the present  case, neither
  privity of contract, nor a special relationship, exist between appellants
  and appellees  which would permit a finding of duty on the part of
  appellees.  See Gus' Catering, __ Vt. at __, 762 A.2d  at 808 ("'Absent a
  duty of care, an action for negligence fails.'") (quoting Rubin v. Tour of 
  Poultney, 168 Vt. 624, 625, 721 A.2d 504, 506 (1998) (mem.)).

       Appellants assert the existence of such a duty on the part of
  appellees through their actions as  professionals under a claimed
  "professional services" exception to the economic loss rule.   Appellants
  place great weight on a footnote contained in Vermont Plastics in which the
  federal  district court in Vermont, having predicted that this Court would
  not permit a tort claim to proceed  where purely economic damages have been
  suffered by a commercial entity, cautioned that it did not  intend to
  "undermine third party recovery in negligence for purely economic losses
  suffered as a  result of reliance upon negligently rendered professional
  services." Vermont Plastics, 824 F. Supp.  at  450 n.7; see also Hydro
  Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 18 (2d Cir. 2000)
  ("[T]he  better course is to recognize that the [economic loss] rule allows
  . . . recovery in the limited class of  cases involving liability for the
  violation of a professional duty.  To hold otherwise would in effect  bar
  recovery in many types of malpractice actions."). It is unnecessary,
  however, to determine the  merit and extent of a "professional services"
  exception to the economic loss rule given the facts of  this case. 
  Although appellees' work may have involved complex and specialized tasks, 

 

  it is undisputed that  appellees did not hold themselves out as providers
  of any licensed professional  service.  See Rockport Pharmacy, Inc. v.
  Digital Simplistics, Inc., 53 F.3d 195, 199 (8th Cir. 1995)  (negligent
  performance of professional services exception to the economic loss
  doctrine has been  applied to negligence claims involving defendants who
  have provided professional services to  plaintiffs and who have been held
  to a professional, rather than ordinary, standard of care).  Although 
  appellees, as either officers or employees of a regulated facility,
  maintained complex and highly  specialized responsibilities, the law
  imposes no special duty upon them for the purpose of a  negligence action,
  which would permit finding an exception to the economic loss rule in this 
  case. (FN2)

       Appellants also contend that appellees acted as their agents for which
  appellees owed a duty  of care.  There is nothing in the record in this
  case on which to base such an assertion.  See Rule v.  N.H.-VT. Health
  Service, 144 Vt. 323, 326, 477 A.2d 622, 624 (1984) (whether agency
  relationship  exists depends on facts of each case).  "An agency
  relationship results when one party consents to  another party acting as
  its agent."  Kimco Leasing Co. v. Lake Hortonia Properties, 161 Vt. 425,
  429,  640 A.2d 18, 20 (1993); see also Restatement (Second) of Agency § 1
  (1958) ("Agency is the  fiduciary relation which results from the
  manifestation of consent by one person to another that the  other shall act
  on his behalf and subject to his control, and consent by the other so to
  act."). 

       Although employees of VPX, neither of appellees, as individuals, were
  "'subject to the  [appellants'] control.'" Kimco, 161 Vt. at 429, 640 A.2d 
  at 20 (quoting Swanson v. Wabash College,  504 N.E.2d 327, 331 (Ind. Ct.
  App. 1987)).  On the contrary, the PSB maintained all decisionmaking 

 

  authority with regard to the trust fund, most importantly for the purposes
  of this action, the power to  order the disbursement of funds in the event
  of a default by one of the power producers.  VPX was  charged with
  administering the fund on behalf of the PSB, not on behalf of the power
  producers.  By  monitoring producer performance, as well as the operational
  and maintenance concerns of each plant,  VPX functioned for the benefit of
  both ratepayers and power producers.  Because VPX maintained 
  responsibilities to all parties, the State, ratepayers and the power
  producers, the assertion that its  employees worked as appellants' agents
  has no merit.  Finally, nothing in the power purchase  agreements between
  VPX and appellants contemplated services to be specifically provided by 
  individual VPX employees or appellees in particular.  See Breslauer, 163
  Vt. at 425, 659 A.2d  at  1134-35 (finding no sufficient manifestation of
  control to create an agency relationship where the  primary economic entity
  acted through employee).  Appellants fail to establish the existence of an 
  agency relationship between the parties on which to base appellees'
  asserted duty of care.

       Affirmed.


FOR THE COURT:



_______________________________________
Chief Justice


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                                  Footnotes

FN1.  VPX was a Chapter 7 debtor in the United States Bankruptcy
  Court, and is not a party to  this case.  Apparently, appellants asserted
  negligence and breach of contract claims against VPX in  its bankruptcy
  proceedings, claiming damages due to the acts and omissions of its officers
  and  directors.  Appellants' attempt to join appellees as defendants in the
  bankruptcy proceeding was  denied.

FN2.  Appellants assert that whether a claim falls within the
  specialized professional services  exception is a question of fact.  The
  governing issue, however, is whether the law imposed upon  appellees a duty
  of care.  Aikens, 541 S.E.2d  at 580-81 ("The determination of whether a
  defendant .  . . owes a duty to the plaintiff is not a factual question for
  the jury; rather [it] . . . must be rendered by  the court as a matter of
  law.").