J.E. Dunn Construction Company v. S.R.P. Development Limited Partnership et al, No. 8:2011cv01948 - Document 25 (D. Md. 2012)

Court Description: MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 9/20/12. (sat, Chambers)

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND : J.E. DUNN CONSTRUCTION CO. : v. : Civil Action No. DKC 11-1948 : S.R.P. DEVELOPMENT LIMITED PARTNERSHIP, et al. : MEMORANDUM OPINION Presently pending and ready for resolution in this contract dispute is a motion to dismiss filed by Defendants S.R.P. Development Limited Partnership ( SRP ), the Smoot Corporation ( Smoot ), and Robuck Investments, Inc. ( Robuck ). 12). (ECF No. The issues are fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the motion will be granted in part and denied in part. I. Background Plaintiff J.E. Dunn Construction Company ( JE Dunn ) commenced this action by filing a complaint on July 15, 2011, alleging against breach SRP, of Smoot, contract, and negligence, Robuck and (collectively, related claims Defendants ). The complaint recites that on September 29, 2005, Metropolitan Baptist Church ( Metropolitan ) contracted with SRP ( the prime contract ) to build a church in Upper Marlboro, Maryland ( the Project ). (ECF No. 1 ¶ 10). SRP then represented to JE Dunn that it was willing to contract with JE Dunn to perform the work under the [the prime contract] for a cost, plus fee with a guaranteed maximum price and that such consistent with [the prime contract]. agreement would (Id. at ¶ 17). be On November 29, 2005, JE Dunn and SRP entered into a modified AIA A491 1996 Agreement Between Design/Builder and Contractor ( the subcontract ) pursuant to which JE Dunn was to supply certain labor and materials to construct portions of the Project. (Id. at ¶ 13).1 On or about August 6, 2008, Metropolitan terminated the prime contract with SRP, allegedly as a result of negligent misrepresentations made to Metropolitan scope and cost of the Project. by SRP (Id. at ¶ 17). regarding On August 18, 2008, SRP terminated the subcontract, without cause. 16). the (Id. at ¶ The subcontract provided, upon termination without cause, that JE Dunn was entitled to recover: the Cost of the Work completed to date [of the termination], less payments made to date [of the termination], plus the cost of demobilizing and canceling existing subcontracts, material contracts and purchase orders and [JE Dunn s] fee shall be calculated as if the Work had been fully 1 The American Institute of Architects produces AIA form contracts for use in construction. They are the most widely used construction contracts and are familiar to most entities in the construction industry. See College of Notre Dame of Md., Inc. v. Morabito Consultants, Inc., 132 Md.App. 158, 174 (2000). 2 completed[,] . . . including [a] reasonable estimate of the Cost of the Work not actually completed. (Id. at ¶ 19). prior to When SRP failed to pay for the work performed termination of the subcontract, JE Dunn filed the instant suit, alleging breach of contract, negligence, negligent misrepresentation, and related claims. On December 12, 2011, Defendants filed a motion to dismiss for lack of subject matter jurisdiction or, in the alternative, for failure to state a claim. (ECF No. 12). JE Dunn opposed that motion on January 9, 2012 (ECF No. 15), and Defendants replied on February 6 (ECF No. 19).2 II. Analysis Defendants argue that the complaint should be dismissed for three reasons. First, they contend that the subcontract incorporates the terms of a general conditions agreement between SRP and Metropolitan, which requires mediation as a condition precedent to arbitration or filing a law suit. According to Defendants, JE Dunn s failure to satisfy this condition warrants dismissal of the case pursuant to Fed.R.Civ.P. 12(b)(1). Secondly, Defendants contend that the complaint fails to allege any facts establishing that [Smoot 2 and Robuck] have any JE Dunn filed a motion to file a surreply on February 7, 2012. (ECF No. 20). Because the issues that JE Dunn wishes to address will be resolved in its favor, the motion will be denied as moot. 3 involvement in the occurrences giving rise to this litigation, and therefore fails to state a claim upon which relief can be granted as to those defendants. (ECF No. 12-1, at 7). Finally, Defendants argue that JE Dunn fails to set forth a cognizable claim upon which relief can be granted for negligence and negligent misrepresentation causes action. its (Id. at 8). A. Failure to Satisfy a Condition Precedent The complaint recites that JE Dunn and SRP entered into a modified AIA A491-1996 Agreement Between Design/Builder and Contractor (ECF No. 1 ¶ 13), but the subcontract itself is not attached. Defendants motion to dismiss refers to and attaches a document entitled AIA Document A491-1996 Part 2 Standard Form of Agreement Between Design/Builder and Contractor. 12-3). In its opposition papers, JE Dunn agrees (ECF No. that this document is the baseline subcontract albeit with a missing page but provided. contends that certain attachments (ECF No. 15, at 15 n. 22). have not been SRP subsequently filed a complete version of the same document it attached to its motion to dismiss. (ECF No. 21-1). There appears to be no dispute as to the authenticity of this document. Defendants also attach to their motion a document entitled AIA Document A201-1997 General Conditions of the Contract for 4 Construction. (ECF No. 12-2). This document contains two broad alternative dispute resolution provisions: 4.5.1 Any Claim arising out of or related to the Contract . . . shall, after initial decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings by either party. . . . . 4.6.1 Any Claim arising out of or related to the Contract . . . shall, after decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Section 4.5. (ECF No. 12-2 ¶¶ 4.5.1, 4.6.1). Defendants argue that the plain language on the cover page of the subcontract incorporates the general conditions set forth in AIA Document A201-1997. Specifically, the cover page recites: AIA Document A201, General Conditions of the Contract for Construction, is adopted in this Part 2 Agreement by reference. Do not use with other general conditions unless this document is modified. (ECF No. 21-1, at 1). Defendants further contend that § 1.1.1 of the subcontract incorporates AIA Document A201-1997. section provides: 5 That The Contract Documents consist of the Drawings, Specifications and other documents identified in Article 15; the Contractor s proposal as accepted by the Design/Builder, a copy of which is attached to this Agreement as Exhibit A; this Agreement/Contract; Conditions of the Contract (General, Supplementary and Other Conditions) issued prior to the execution this Agreement; and Modifications and construction documents issued after execution of this Agreement. (Id. at § 1.1.1). According to Defendants, these two references are sufficient to incorporate AIA Document A201-1997 and the alternative dispute resolution clauses contained therein. In response, JE Dunn argues that AIA software would not permit modification of the cover page and that the boilerplate introductory language should not be used to contradict the portions of the contract that the parties were able to and extensively did modify. (ECF No. 15, at 12). As evidence that the subcontract was not intended to incorporate the general conditions of the prime contract, Defendants point out that AIA Document A201-1997 was not listed in Article 15 of subcontract, entitled Enumeration of Contract Documents. No. 21-1, at 14). That Article provides, in relevant part: § 15.1 The Contract Documents, except for Modifications issued after execution of this Agreement, include the documents listed in this Article. § 15.1.1 Not used. 6 the (ECF § 15.1.2 The Conditions of the Contract are as follows . . . To be added by Amendment. (Id. at §§ 15.1 15.1.2). papers what it subcontract. Conditions asserts JE Dunn attaches to its opposition is an unmodified version of the That document recites, at § 15.1.1, The General are the General Conditions of the Contract for Construction, AIA Document A201, current as of the date of this agreement. According to JE Dunn, the fact that the subcontract indicates that § 15.1.1 is not used is clear evidence of the parties intention not to use conditions of [the subcontract]. In their reply papers, the AIA A201 as the general (ECF No. 15, at 19). Defendants contend that JE Dunn could have manually deleted the recital on the cover page if the parties did not intend to incorporate AIA Document A201-1997. (ECF No. 19, at 2). They provide no explanation, however, as to why the subcontract states that the conditions of the contract were to be added by [a]mendment, nor have they provided any supplementary conditions.3 3 Defendants argue for the first time in their reply memorandum that an arbitration clause found in § 12.4 of the subcontract is applicable. The ordinary rule in federal courts is that an argument raised for the first time in a reply brief or memorandum will not be considered. Clawson v. FedEx Ground Package Sys., Inc., 451 F.Supp.2d 731, 734 (D.Md. 2006). In any event, the arbitration clause cited by Defendants applies only to disputes regarding the amount of a final payment, which is triggered when (1) the subcontract has been fully performed ; (2) a final Application for Payment and a final accounting for 7 Courts have disagreed as to the proper standard to be applied in considering a motion to dismiss for failure to engage in alternative dispute resolution as a condition precedent to filing suit. Some have found that such an omission constitutes a jurisdictional defect, see Tattoo Art, Inc. v. TAT Int l, LLC, 711 F.Supp.2d others 651 held have 645, (E.D.Va. that 2010) (citing the question of cases), subject while matter jurisdiction is analytically distinct from that of failure to satisfy conditions precedent to suit, N-Tron Corp. v. Rockwell Automation, Inc., No. 09-0733-WS-C, 2010 WL 653760, at *4 (S.D.Ala. Feb. 18, 2010); see also Harris v. Amoco Production Co., 768 F.2d 669, 680 (5th Cir. 1985) ( while the failure to comply with a condition precedent usually means that a plaintiff cannot bring suit . . . , it does not mean that the district court lacks subject matter jurisdiction ). applicable support standard that the of review, subcontract the Regardless of the instant incorporates record the does not alternative dispute resolution provisions of AIA Document A201-1997. By itself, the introductory language in the subcontract is insufficient to incorporate AIA Document A201-1997. Under Maryland contract law, courts look to the body of an agreement, the Cost a final No. 21-1 that any of the Work have been submitted and reviewed; and (3) Certificate for Payment has then been issued. (ECF § 12.1). There is no indication in the current record of those events has occurred. 8 not the introduction contract. alone, to determine the meaning of a See Pulaski v. Riland, 199 Md. 426, 431 (1952) ( we must look to the operative part of the agreement to find out what the parties actually did ); see also Wilson v. Towers, 55 F.2d 199, 200 (4th Cir. 1932) (courts may look to introductory language to resolve ambiguity, but not to create it). This practice is consistent with case law from other jurisdictions interpreting AIA form contracts.4 Indeed, other courts have found that an introductory recital to an AIA contract, standing alone, is insufficient to incorporate another document. Atlantic Mut. Ins. Co. v. Metron Eng g & Constr. Co., 83 F.3d 897, (7th 899 [n]othing parties in Cir. the incorporate 1996) body (aside of A201/CM, the or from introductory agreement requires indicates that the language, that the parties themselves have chosen to do so ); Hartford Fire Ins. Co. v. Henry Bros Const. Management Services, LLC., No. 10-4746, 2011 WL 3563138, at *6 (N.D.Ill. Aug. 10, 2011) (finding introductory language alone was not the clear and specific language that Illinois law requires to incorporate Heitritter v. Callahan Constr. Co., another document ); 670 N.W.2d 430, 2003 WL 22015970, at *4 (Iowa App. Aug. 27, 2003) ( Preliminary recitals 4 Maryland courts have not interpreted AIA form contracts in a way that aids the court s analysis. Thus, analysis of Maryland contract law principles will be supplemented by an examination of how other courts have interpreted AIA form contracts. 9 of an agreement do not become binding obligations unless so referred to in the operative portion of the instrument as to show a design they should form a part of it ); Webb v. Children s Oncology Serv. of L.A., No. 88-2173, 1989 WL 92461, at *1 (E.D.La. Aug. 9, 1989) (the preamble of an AIA contract is the language that precedes the term Agreement ). In the instant case, the recital relied upon by Defendants is located on the cover page of the subcontract. The second page, after the preamble, provides, [SRP] and [JE Dunn] agree as set forth below. (ECF No. 21-1, at 2). The body of the contract, which contains the terms of the parties agreement, does not specifically refer to AIA Document A201-1997; rather, it provides that the conditions of the contract are to be added by [a]mendment. (Id. at 14). Neither party has provided any amendment to the subcontract. The language contained in § 1.1.1 is also inadequate to incorporate AIA Document A201-1997. That section provides that [t]he Contract Documents consist of . . . Conditions of the Contract (General, Supplementary and Other Conditions). In Atlantic Mutual, 83 F.3d at 900, the United States Court of Appeals for the Seventh Circuit expressly rejected the proposition that identical language contained in a similar AIA form contract contract. incorporated the general conditions of another In reversing the district court s grant of summary 10 judgment, the court reasoned, in part, nothing in Article 1 refers to A201/CM. Contract. parties . . using . Article 1 only refers to Conditions of the [T]here no requirement subcontract] [the is incorporate parties general conditions. Id. at 900. that contracting A201/CM as the The court asked rhetorically, If A201/CM provides the General conditions of the contract, where are the Supplementary and other conditions expressly mentioned in Article 1? then answered, We cannot find them anywhere. interpretation incorporating exist. of Were we to adopt the [defendants ] Article additional 1, we documents would that necessarily apparently be do not Id. In the instant case, § 1.1.1 does not define the documents that constitute the general conditions of the subcontract. The only specific language in the body of the subcontract regarding general conditions is provided in Article 15, which recites that the conditions of the contract will be added by [a]mendment. Indeed, neither Article 1 nor Article 15 refers to AIA Document A201-1997. Additionally, the court has not been presented with any supplementary conditions, which, if the court were to accept Defendants reading of § 1.1.1, would be incorporated as well. Finally, modified, conditions the appears beyond subcontract, to those contain found 11 which no in has been reference § 1.1.1. extensively to The general unmodified version of AIA Document A491-1996 contains seventeen references to clauses found in AIA Document A201-1997. subcontract, removed. all references outside of In the parties § 1.1.1 have been Moreover, in at least two instances at §§ 14.2 and 14.4 whole portions of AIA Document A201-1997 have been copied and placed in the body of the agreement. This suggests that the parties did not intend to incorporate AIA Document A201-1997, but rather to import certain sections by writing them into the subcontract itself. In sum, Defendants have not shown that the alternative dispute resolution clauses in §§ 4.5.1 and 4.6.1 of AIA Document A201-1997 were incorporated into the subcontract at issue in this case. Accordingly, their motion to dismiss for failure to satisfy a condition precedent will be denied. B. Failure to State a Claim 1. Standard of Review The purpose sufficiency of Charlottesville, of the 464 a motion to dismiss complaint. F.3d 480, 483 is Presley (4th to v. Cir. test the City of 2006). A plaintiff s complaint need only satisfy the standard of Rule 8(a), which requires a short and plain statement of the claim showing that the pleader is entitled to relief. 8(a)(2). Fed.R.Civ.P. Rule 8(a)(2) still requires a showing, rather than a blanket assertion, of entitlement to relief. 12 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 n. 3 (2007). That showing must consist of more than a formulaic recitation of the elements of a cause of action or naked assertion[s] devoid of further factual enhancement. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal marks and citations omitted). At this stage, the court must consider all well-pleaded allegations in a complaint as true, Albright v. Oliver, 510 U.S. 266, 268, (1994), and must construe all factual allegations in the light most favorable to the plaintiff, see Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)). In evaluating the complaint, the court need not accept unsupported legal allegations. Revene v. Charles Cnty. Comm rs, 882 F.2d 870, 873 (4th Cir. 1989). Nor must it agree allegations, with legal conclusions couched as factual Iqbal, 556 U.S. at 678, or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979); see also Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009). [W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged, but it has not show[n] . . . that the pleader is entitled to relief. 8(a)(2)). Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. Thus, [d]etermining whether a complaint states a 13 plausible claim for relief will . . . be a context-specific task that requires the reviewing experience and common sense. 2. court to draw on its judicial Id. The Smoot Corporation and Robuck Investments, Inc. Defendants contend that JE Dunn has not pled sufficient facts demonstrating that SRP s general partners, corporations Smoot and Robuck, had any involvement in the occurrences giving rise to this litigation, and that these corporate defendants should, therefore, be dismissed. (ECF No. 12-1, at 7). In response, JE Dunn identifies several allegations in the complaint relating to Smoot and Robuck: JE Dunn has alleged that Smoot and Robuck transacted business and performed work and service in Maryland under several contracts related to the subject construction project in their capacity as general partners of SRP. [ECF No. 1 ¶ 8]. JE Dunn has further alleged that it contracted with SRP by and through that entity s general partners Smoot and Robuck. [Id. at ¶ 23]. The Complaint likewise alleges that Smoot and Robuck participated in requesting JE Dunn to perform the services at the heart of this litigation, and that Robuck and Smoot accepted JE Dunn s performance and were on notice of JE Dunn s expectation of payment. [Id. at ¶¶ 29-31, 34]. Finally, JE Dunn has alleged that Smoot and Robuck made promises to pay to JE Dunn the amounts sought in this action. [Id. at ¶¶ 37, 39]. (ECF No. 15, at 28 (internal brackets added; footnotes removed). JE Dunn further contends that, as general partners of SRP, Smoot 14 and Robuck are liable for all of SRP s obligations. (Id. at 29). There appears to be no dispute that Smoot and Robuck are general partners of SRP, an Ohio limited partnership. Ohio law, [a] partners. partnership is an entity distinct Ohio Rev. Code Ann. § 1776.21(A). Under from its Pursuant to § 1776.36(A), absent exceptions not applicable here, all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law. Section 1776.37, entitled Actions by or partnership, provides: (A) A partnership may sue and be sued in the name of the partnership. (B) An action may be brought against the partnership and, to the extent not inconsistent with section 1776.36 of the Revised Code, any or all of the partners in the same action or in separate actions. (C) A judgment against a partnership is not by itself a judgment against a partner. A judgment against a partnership may not be satisfied from a partner s assets unless there is also a judgment against the partner. (D) A judgment creditor of a partner may not levy execution against the assets of a partner to satisfy a judgment based on a claim against the partnership unless the partner is personally liable for the claim under section 1776.36 of the Revised Code and any of the following apply: 15 against (1) A judgment based on the same claim was obtained against the partnership and a writ of execution on the judgment was returned unsatisfied in whole or in part; (2) The partnership bankruptcy; is a debtor in (3) The partner agreed that the creditor need not exhaust partnership assets; (4) A court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court s equitable powers; (5) Liability is imposed on the partner by law or contract independent of the existence of the partnership. The official comments to the Revised Uniform Partnership Act ( RUPA ), which has been adopted in Ohio, explain that [s]ubsection (d) requires partnership creditors to exhaust the partnership s assets before levying on a judgment debtor partner s individual property where the partner is personally liable for the partnership obligation under [§ 1776.36(A)]. Revised Uniform Partnership Act (1997), § 703, cmt. 4. This rule respects the concept of the partnership as an entity and makes partners more in the nature of guarantors than principal debtors on every partnership debt. Id. Although the RUPA was adopted in Ohio relatively recently, these principles appear to 16 be consistent with Ohio law before it became effective. See Pension Ben. Guar. Corp. v. East Dayton Tool and Die Co., 14 F.3d 1122, 1128 (6th Cir. 1994) ( Before a creditor can seek [a] partners individual assets, Ohio law requires a specific determination that partnership assets are insufficient to meet partnership debts. ); Wayne Smith Construction Co. v. Wolman, Duberstein & Thompson, ( partners are not 604 N.E.2d primarily 157, liable obligations incurred by their firm. 163 for (Ohio the 1992) contractual A partnership creditor in proceedings in execution of a judgment against the partnership must first exhaust partnership property before resorting to the personal assets of partners. ). Thus, Smoot and Robuck, as SRP general partners, may be liable for any outstanding obligation after exhaustion of SRP s assets and, for however, to plead that reason, are proper parties to this suit. JE Dunn has failed, sufficient facts demonstrating that either Smoot or Robuck may be independently liable for the underlying causes of action. Although the complaint recites that JE Dunn entered into [the subcontract] by and through Smoot and Robuck (ECF No. 1 ¶ 21), neither of those entities was a signatory to the subcontract. Moreover, the complaint does not allege that Smoot or Robuck owed any duty to JE Dunn at the time the subcontract was formed. Because Smoot and Robuck may not be held individually liable, JE Dunn 17 may not satisfy any judgment against them without first exhausting the assets of SRP. 3. Negligence and Negligent Misrepresentation The last two counts of the complaint are labeled negligent misrepresentation and negligence.5 SRP challenges only the sufficiency of the allegation, required for either claim under Maryland law, that JE Dunn was owed a legally cognizable duty by SRP. See, e.g., Jacques v. First Nat l Bank of Md., 307 Md. 527, 532 (1986) (negligence); Martens Chevrolet, Inc. v. Seney, 292 Md. 328, 336-37 (1982) (negligent misrepresentation). JE Dunn alleges in its complaint that SRP owed it a duty both to make accurate statements to JE Dunn regarding the project both during precontractual negotiations and after the parties entered into the SRP Subcontract, and to manage the Project in a responsible manner and in accordance with industry standard[s], which required SRP to communicate accurate and material information to JE Dunn and Metropolitan regarding the cost and scope of the work. argue that the (ECF No. 1 ¶¶ 42 and 49). claims for negligence and Defendants negligent misrepresentation must be dismissed because JE Dunn raises no legal obligation owed to it by the defendants other than those based in contract. (ECF No. 12-1, at 8). 5 Both are labeled Count V and seek the same measure of damages. 18 Under Maryland law, a duty in tort will be imposed only if the nature of the relationship parties so dictate. misrepresentation, here, the and transaction between the In the context of negligence and negligent Maryland failure to courts exercise have due found care that creates where, a risk as of economic loss only, an intimate nexus between the parties [i]s a condition to the imposition of tort liability. F.S.B. v. Tandem Nat. Mortg., Inc., 197 Superior Bank, F.Supp.2d 298, 320 (D.Md. 2000) (citing Jacques, 307 Md. at 534) (internal marks omitted). An intimate nexus requires contractual privity or its equivalent, and will turn on the closeness of the parties relationship. Id.; see also Tischler v. Baltimore Bancorp, 801 F.Supp. 1505 1493, (D.Md. 1992) (noting that an intimate nexus cannot exist unless a defendant is aware of a specific party or class of parties which intend to rely upon the defendant s statement ) (citing Brickman v. Tyco Toys, Inc., 722 F.Supp. 1054, 1062 (S.D.N.Y. 1989)). In addition to contractual privity, courts have found an intimate nexus between parties engaged in pre-contract negotiations. See Griesi Atlantic General Hosp. Corp., 360 Md. 1, 13 (2000); Weisman v. Connors, 312 Md. 428, 446 (1988); Martens Chevrolet, 292 Md. at 331-38; L & P Converters, Inc. v. Alling & Cory Co., 100 Md.App. 563, 57071 (1994). 19 Maryland courts have consistently held that parties conducting pre-contractual negotiations owe a duty to speak with reasonable care. See Griesi, 360 Md. at 19-20; Brock Bridge Ltd. Partnership, Inc. v. Development Facilitators, Inc., 114 Md.App. 144, 163 (1997). In Griesi, a hospital made an offer to a job applicant, specifying a starting date and the scope of responsibilities, when the job position had already been filled by another applicant. employment and The hospital then rescinded its offer of the applicant sued, alleging negligent misrepresentation during the course of contract negotiations. Holding that the hospital owed a duty to speak with reasonable care during pre-contractual negotiations, the Court of Appeals of Maryland reasoned that pre-contractual negotiations are a business transaction, where a special relationship may develop giving rise to facilitating the a duty to exercise transaction. reasonable Griesi, 360 Md. care at in 15-16. During such negotiations, the employer necessarily must provide relevant foresee and accurate that information employee. information and reasonably negligent may Id. misrepresentation result economic at 16 in (citing harm Weisman, to 312 should of employment the prospective Md. at 449). Similarly, in Brock Bridge, 114 Md.App. at 148, the defendant was an engineering company employed to help construct roadside improvements in a housing development. 20 Pre-contractual representations were made that the costs to the developer would not exceed $70,000. $250,000. In fact, the cost of the project exceeded The trial court dismissed the plaintiffs negligence claims, reasoning that no duty to guarantee future costs which may arise and which may exceed estimated costs arises as a duty of care outside a contractual agreement Id. at 152. Court overages. The of to guarantee Special such Appeals of Maryland reversed, however, holding that the plaintiffs were entitled to rely on this estimate to a reasonable extent and to recover for damages incurred because of this reliance. 163. The estimate . appellate court . an . was found estimate that by the one Id. at defendant s cost knowledgeable in a particular field and that the plaintiffs were entitled to rely on this estimate to a reasonable extent and to recover for damages incurred because of this reliance, even though the representation (assuming it was negligently made) encompassed future events. Id. at 162-63 (citing Ward Development, Inc. v. Ingrao, 63 Md.App. 645, 656 (1985)); see also Martin Marietta Corp. v. International Telecomm. Satellite Org., 991 F.2d 94, 99 (4th Cir. 1992) (under Maryland law, [a] party to a contract cannot, by misrepresentation of material fact, induce the other party to the contract to enter into it to his damage. Martens Chevrolet, 292 Md. at 539 n. 7)). 21 (quoting Here, JE Dunn has alleged that SRP owed a duty to make accurate statements prior to the time the parties entered into the subcontract. The complaint recites that SRP had exclusive control of vital information that was necessary for JE Dunn to understand necessary details. Indeed, JE Dunn was not a party to the Metropolitan-SRP prime contract and it was entitled to rely to a reasonable extent on SRP s representations as to the content of that contract. alleges negligent negotiations that Thus, to the extent that JE Dunn misrepresentation induced it to based enter on into pre-contractual the subcontract, Maryland law supports that it was owed an independent duty that SRP s representations be accurate and the allegations in the first Count V for negligent misrepresentation are sufficient in the pre-contractual phase. On the other hand, it is a fundamental principle of Maryland law that [t]he mere negligent breach of a contract, absent a duty or obligation imposed by law independent of that arising out of the contract itself, is not enough to sustain an action sounding in tort. Constr. Co., 683 F.Supp. Flow Industries, Inc. v. Fields 527, 530 (D.Md. 1988) (quoting Heckrotte v. Riddle, 224 Md. 591, 595 (1961)); see also Mesmer v. Md. Auto. Ins. Fund, 353 Md. 241, 254 (1999) ( negligent breach of a contract, absent a duty or obligation imposed by a source independent of that arising out of the contract itself, 22 is not enough to sustain an action sounding in tort ) (quoting Board of Educ. v. Plymouth Rubber Co., 82 Md.App. 9, 31 (1990)). To find that a contractual relationship itself provides the duty of care necessary for the maintenance of a negligent misrepresentation claim would be to turn this principle into a syllogism because [t]he contract, in effect, would become an independent duty F.Supp. at 530. have some the the by law. Flow Industries, 683 Thus, a duty giving rise to a tort action must independent Ultimately, whether imposed basis. essential plaintiff s Mesmer, question interests 353 in Md. this are at 253. analysis entitled to is legal protection against the defendant s conduct, and no universal test for Jacques, [imposition 307 Md. of at a duty] 532-33 ever (internal has been marks formulated. and citation omitted). Under certain situations, Maryland courts have recognized that parties to a contract have legal obligations beyond the scope of the obligations in the contract. For example, in Jacques, 307 Md. at 540, the court held that a bank owed a duty to process a loan with reasonable care, focusing on the extent to which the plaintiff was particularly dependent upon the Bank s exercise of due care. vulnerable and In so ruling, the court explained that [t]he law generally recognizes a tort duty of due care arising from 23 contractual dealings with professionals such as public accountants. physicians, attorneys, architects, and Id. at 541. Courts have been hesitant, however, to impose tort duties on sophisticated parties that have legal obligations through contract. otherwise outlined their In Martin Marietta Corp, 991 F.2d at 95-96, the defendant agreed to launch a satellite for the plaintiff and the launch failed, allegedly due to the defendant s negligence. The court held that the defendant did not owe a legal duty beyond what was enumerated in the contract, reasoning that [e]qually sophisticated parties who have the opportunity to allocate risks to third party insurance or among one another should be held to only those duties specified by the agreed upon contractual terms and not to general tort duties imposed by state law. Id. at 98; see also CapitalSource Finance LLC v. Pittsfield Weaving Co., 571 F.Supp.2d 668, 674 (D.Md. 2006) ( Under Maryland law, a claim for negligent misrepresentation is improper when . . . the only relationship between the parties is contractual, both parties are sophisticated, and the contract does not create an express duty of due Marietta, care in 991 F.2d making at representations 98)); Rotorex Co., (quoting Inc. v. Martin Kingsbury Corp., 42 F.Supp.2d 563, 575 (D.Md. 1999) ( In a case involving a commercial transaction such as the one at issue here, the remedies provided . . . in the contract are exclusive. ); Blue 24 Circle Atlantic, Inc. v. Falcon Materials, Inc., 760 F.Supp. 516, 519 (D.Md. 1991) ( a claim of negligent misrepresentation causing economic loss in the course of a commercial transaction or relationship, at least where the parties are merchants, ought not be entertained Industries, Inc., 683 (internal F.Supp. citation at 530 omitted)); ( Where . . Flow . the controversy concerns purely economic losses allegedly caused by statements made during the course of a contractual relationship between businessmen, it is plainly contract law which should provide the rules and principles by which the case is to be governed. ); cf. Cooper v. Berkshire Life Ins. Co., 148 Md.App. 41, 86 n. 8 (2002) (distinguishing between finding a duty for negligent misrepresentation between sophisticated parties in pre-contractual and post-contractual dealings). An unpublished decision of the Fourth Circuit illustrates these principles in the construction context. Systems, 214446 Inc. (4th v. Gilbane Cir. Bldg. 1992) Co., (Table), 974 the In Architectural F.2d 1330, prime 1992 WL contractor misrepresented to a subcontractor the project owner s ability to pay, and the subcontractor alleged that the prime contractor owed a duty to disclose certain information during the course of the contract. the The Fourth Circuit disagreed, holding that, in construction disclosure arises. industry, [n]o Id. at *5. 25 extracontractual duty of The court reasoned that the parties were equally sophisticated in general business affairs, id. at *6, and were free to define respective rights and liabilities, id. contractually at *4. their Notably, it distinguished Jacques by explaining that subcontractors are not particularly vulnerable and that the construction industry is not similar to the banking industry in its relation to public welfare. Id. at *5. In the instant case, JE Dunn has not alleged facts showing that, once the contract was formed, SRP was under an obligation beyond those contained in the subcontract to manage the project in a professional manner. Construction contracts and subcontracts are detailed agreements allocating responsibility and risk. The parties, both sophisticated professionals with experience in construction projects and contracts, were free to allocate duties and risks amongst themselves indeed, they did so in the subcontract itself. both negligence and Thus, JE Dunn s tort claims for negligent misrepresentation based on an alleged duty to manage the project in accordance with industry standards or to make accurate representations subcontract was signed cannot be sustained. 26 after the III. Conclusion For the foregoing reasons, Defendants motion to dismiss will be granted in part and denied in part. A separate order will follow. ________/s/_________________ DEBORAH K. CHASANOW United States District Court 27

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