New England Youth Theatre, Inc. v. Envtl. Complianc e Servs., No. 138-4-12 Wmcv (Carroll, J., Feb. 26, 2013)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] VERMONT SUPERIOR COURT

SUPERIOR COURT CIVIL DIVISION

Windham Unit Docket No. 138-4-12 Wmcv

New England Youth Theatre, Inc.,

Plaintiff

v.

Environmental Compliance Services, Inc., Joseph S. Pieciak, Jr., Elm Street Realty, Inc., and Corner Realty, Inc.

Defendants

Decisions on Motion to Dismiss and Motion to File S urreply

Factual Background

Defendant, Environmental Compliance Services, Inc ., moves to dismiss Plaintiff’s claims for professional negligence and negligent mi srepresentation. On August 30, 2012, the Court granted Defendant’s first motion to dismiss. The current motion raises new legal issues and requires separate consideration. The Court reli es on the facts provided by Plaintiff for this

motion.

Joseph Pieciak owned and controlled Elm Street Rea lty and Corner Realty. In 1994, he used Elm Street Realty to purchase Lot 56 in Brattl eboro. In 1997, Pieciak used Corner Realty to purchase Lots 54 and 55. Before purchasing the lots , Pieciak had ERD Environmental (ERD) conduct environmental site assessments. In 1996, ER D issued reports to Pieciak that did not identify all of the environmental problems with the lots.

In 2002, Pieciak requested Banknorth refinance his debts in regard to the lots. Banknorth required Pieciak to obtain more recent environmenta l assessments. In 2003, Pieciak hired Environmental Compliance Services (ECS), Defendant, to update ERD’s reports. Defendant

conducted the environmental assessments in the wint er of 2004. Defendant relied on the parts of ERD’s reports and also failed to observe all of the environmental issues associated with the sites.

In 2006, New England Youth Theatre (NEYT), Plainti ff, signed a purchase and sale agreement with Pieciak for all three lots. Chittend en Bank, NEYT’s lender, required NEYT to obtain assurances about potential environmental lia bilities of the sites. Pieciak referred NEYT to the 2004 ECS reports. NEYT did not know of any envi ronmental risks at the time of purchase. In 2007, the Vermont secretary of state involuntarily terminated Elm Street Realty and Corner Realty for failure to file an annual report. The co rporations have not been reinstated.2

In 2008, Plaintiff wanted to sell a portion of the property to Fulcrum Arts. Fulcrum Arts

hired KAS and GCM Environmental to conduct new envi ronmental assessments. The new environmental consultants found significant environ mental liabilities on the properties. Fulcrum

backed out of the deal. NEYT now works with the Ver mont Department of Environmental Conservation and the Environmental Protection Agenc y to develop a corrective action plan.

The first motion to dismiss concerned Plaintiff’s direct claims against Defendant for professional negligence and negligent misrepresenta tion. The Court granted the motion to dismiss because Plaintiff lacked privity or near pr ivity of contract with Defendant. The amended complaint alleges Pieciak assigned any claims again st ECS to NEYT as part of a settlement. Plaintiff now makes claims for professional neglige nce (Count III), negligent misrepresentation (Count IV), and breach of contract (Count V) as an assignee from Pieciak.

Procedural History

Defendant filed this motion to dismiss (Motion No. 4) on August 17, 2012. Plaintiff opposed the motion on September 7, 2012. Defendant filed a response to Plaintiff’s opposition on September 24, 2012. Plaintiff filed a motion for permission to file a surreply on October 9, 2012 (Motion No. 6). On the same day, Plaintiff als o filed the surreply. On October 22, 2012, Defendant opposed Plaintiff’s motion to file a surr eply and addressed the merits of the surreply.

Standard of Review

The Court disfavors and rarely grants motions to di smiss. See Bock v. Gold , 2008 VT 81, ¶ 4, 184 Vt. 575. The Court uses motions to dis miss to evaluate the law in a pleading. Powers v. Office of Child Support , 173 Vt. 390, 395 (2002). Accordingly, the Court w ill only grant a

motion to dismiss when there are “no facts or circu mstances, consistent with the complaint that

would entitle Plaintiff to relief.” Bock , 2008 VT 81, ¶ 4. “[T]he threshold a Plaintiff mus t cross in order to meet our notice-pleading standard is ‘e xceeding low.’” Id. (quoting Henninger v. Pinellas County , 7 F. Supp. 2d 1334, 1336 (M.D. Fla. 1998)). The V ermont Supreme Court continues to apply a relaxed notice-pleading standa rd. Bock , 2008 VT 81, ¶ 5, n. For this motion, the Court assumes the truth of all facts offered by the non-moving party. Id. at ¶ 4.

Discussion

Defendant moves for dismissal on four grounds: (1) terminated corporations may not assign tort claims; (2) professional negligence and negligent misrepresentation claims do not fall under Vermont’s survival statute; (3) the assignmen t of these claims violates public policy; and, (4) Plaintiff failed to assert a valid claim for pr ofessional negligence. The Court will respond to each of Defendant’s arguments and then evaluate whe ther to accept Plaintiff’s surreply.

1. An Involuntarily Terminated Corporation’s Power to Assign Claims

The first issue raised by this motion is whether te rminated corporations may assign claims. The secretary of state will terminate a cor poration for failure to file an annual report. 11A V.S.A. § 14.20(a). An involuntarily terminated corp oration may prevent a proceeding against the3

corporate name, suspend a proceeding by or against the corporation that was pending at the termination date, and terminate the authority of th e corporation’s registered agent. Id. § 14.20(d). The dissolved corporation may do anything “necessar y to wind up and liquidate its business and

affairs.” Id. § 14.05(a)(5). A dissolved corporation lacks the e numerated powers granted to an involuntarily terminated corporation in § 14.20(d). See id. §§ 14.05(b)(5)–(7).

The parties dispute the meaning of section 14.20. D efendant argues 14.20(d) is an exclusive list of the powers of an involuntarily te rminated corporation. In contrast, Plaintiff argues the list is not exclusive and the Court shou ld treat terminated corporations like dissolved corporations. The powers explicitly granted to invo luntarily terminated corporations are denied to dissolved corporations. Compare id. § 14.05(b)(5)–(7), with id. § 14.20(d). The legislature’s extension of additional powers to terminated corpor ations suggests terminated corporations also have the powers of dissolved corporations. Furtherm ore, the powers granted to nonprofit corporations and a case interpreting an older versi on of the statutes indicate a terminated corporation may assign its claims. See 11B V.S.A. §§ 14.05, 14.20, 14.21; Daniels v. Elks Club of Hartford , 2012 VT 55, ¶ 57, n. 15; Black River Ass’n v. Koehler , 126 Vt. 394, 397–98 (1967).

For guidance on what powers terminated corporations have, the Court may look to Title 11B, which applies to nonprofit corporations. See Daniels , 2012 VT 55, ¶ 57, n. 15. In Daniels

, the Vermont Supreme Court evaluated the liabilities of a terminated non-profit corporation and

its members. See id. ¶ 2. Although the Court decided the cases on other grounds, a footnote provides a clue on the court’s interpretation of bo th Title 11A (business corporations) and Title 11B (nonprofit corporations). The court noted: “Alt hough the statues applicable to business corporations and those applicable to nonprofit corp orations have some language difference, the substance of the current statutes is essentially th e same.” Id. at n. 15.

The nonprofit corporations statute suggests a termi nated corporation may assign claims. The secretary of state may dissolve a nonprofit cor poration for failing to file a biennial report. 11B V.S.A. § 14.20(2). A dissolved nonprofit corpor ation may also do “every other act necessary to wind up and liquate its assets and aff airs.” Id. § 14.05(8). Thus, a nonprofit corporation that fails to file the proper report as sign claims. To the extent nonprofit corporations and business corporations have parallel powers, a t erminated business corporation may also assign its assets. See Daniels , 2012 VT 55, n. 15.

Black River , which interpreted a predecessor statute, also sug gests a terminated corporation may assign claims. 126 Vt. at 397–98. I n Black River , the secretary of state dissolved a corporation for not filing an annual report. 1 Id. at 396. Nevertheless, the court allowed the assignment because another provision of the statute allowed a terminated corporation “three years to enable it gradually to close its affairs, to dispose of its property...” See id. ; see also 11 V.S.A. § 491 (repealed in 1971). The court “perceiv e[d] no intent by the legislature to deprive a corporation, whose charter has been forfeited for f ailure to file an annual report, from the remedial provisions of § 491 applicable to corporat ions whose charters are otherwise annulled.”

1 11 V.S.A. § 423, which was repealed in 1971, indic ated: “A corporation, having a capital stock, which fails to file the annual report required by section 421 of this t itle within three months of the date therein requir ed, shall cease to exist and the secretary of state shall notify such corporation of such termination.” See Black River , 126 Vt. at 396.4

Black River , 126 Vt. at 397–98. The authority to assign claims is part of the power of winding up a corporation. Id. at 397.

In the instant case, Elm Street Realty and Corner R ealty could assign claims under 11A V.S.A §§ 14.05, 14.20. The statutory language sugge sts section 14.20(d) gives terminated corporations powers that exceed dissolved corporati ons. Terminated corporations therefore maintain the powers of dissolved corporations in ad dition to their section 14.20(d) powers. Moreover, reading the nonprofit corporations act an d the business corporation act together indicates terminated corporations have the powers o f dissolved corporations. Finally, Black

River’s interpretation of the predecessor statute also sup ports reading these statutes to grant involuntarily terminated corporations the power to assign claims as part of the powers to wind up the corporations.

2. Survival of the Causes under 14 V.S.A. § 1451

The next issued raised by Defendant is whether prof essional negligence and negligent misrepresentation claims survive the death of the o riginal holder of legal title. See 14 V.S.A. § 1451. The survival of causes statute provides “da mages done to real or personal estate shall

survive...” Id. The Vermont Supreme Court ruled the language of a predecessor statute “should

be construed... liberally.” Dana v. Lull , 21 Vt. 383, 390 (1849). Defendant cites Jones v. Ellis’

Estate to demonstrate fraud does not survive the death of the original title holder. 68 Vt. 544, 547 (1896). Plaintiff’s claims are professional neglige nce and negligent misrepresentation and not fraud. These are not the same torts. Accordingly, t he Court liberally interprets 14 V.S.A. § 1451

and allows causes of action to survive transfer.

3. Assignment of Claims and Vermont Public Policy

Defendant next argues allowing assignment of profes sional negligence related claims violates public policy. For example, New Jersey cou rts forbid the assignment of tort claims before judgment. See Integrated Solutions, Inc. v. Serv. Support Specialties, Inc. ̧ 124 F.3d 487, 490 (3d. Cir. 1997). Plaintiff admits a minority of jurisdictions follow its arguments. See Sprint

Commc’ns Co. v. APCC Servs. Inc ., 554 U.S. 269, 273–86 (2008) (discussing the hist ory of claim assignments). As described by Justice Breyer, there is not a general public policy against allow assignment of claims. See id . The Court will not prohibit the assignment of cla ims as a general matter, but will consider reasons for banni ng the assignment of specific claims.

Defendant’s justifications for banning the assignm ent of tort claims in this case are unpersuasive. Defendant asserts there is a risk of collusion because the terminated companies had no reason to dispute liability or damages. Alth ough collusion may eventually be a concern, it raises factual questions that the Court will not de cide on a motion to dismiss. See Bock , 2008 VT 81, ¶ 4 (discussing the standard of review on motio ns to dismiss).

Defendant also asserts that because some states pre vent the transfer of legal malpractice claims, the Court should ban the assignment of all professional malpractice claims. See, e.g.

, Del. CWC Liquidation Corp. v. Martin , 584 S.E.2d 473, 479 (W.Va. 2003) (barring the ass ignment of a legal malpractice claim). The comparison is unper suasive because the justification for barring5

assignment for legal malpractice claim is based on the fiduciary duties owed by an attorney. See

id. Environmental consultants do not owe fiduciary dut ies on par with the duties of attorneys. In this case, there is no specific reason to ban the a ssignment.

4. Professional Services and the Economic Loss Rule

Finally, Defendant asserts the economic loss rule blocks Plaintiff’s claims for negligent misrepresentation and professional negligence. “The economic-loss rule prohibits recovery in tort for purely economic losses.” EBWS, LLC v. Britly Corp. , 2007 VT 37, ¶ 30, 181 Vt. 513. Nevertheless, “[p]urely economic losses may be reco verable in professional services cases because the parties have a special relationship, wh ich creates a duty of care independent of contractual obligations.” Id. ¶ 31. The court reasoned the type of relationship determines whether the professional services exception to the economic loss rule applies. Id.

Although no Vermont cases address whether environm ental consultants fall under the professional services exception, a few cases provid e examples. EBWS held that construction contractors do not fall under professional services

. Id. at ¶ 32. Lamell Lumber Corp v. Newstress

International Inc . found a specialized kiln manufacture provided pro fessional services. 2007 VT 83, ¶ 16, 182 Vt. 282. Lamell also characterized a previous case involving an ar chitect as a professional services case. See id. ; see also Howard v. Usiak , 172 Vt. 227, 230, 237 (2001) (suit against architect). The court also distinguished a construction contractor from “an engineer, architect or other professional” while discussing t he professional services exception. See Long Trail House Condo. Ass’n v. Engelberth Const., Inc. , 2012 VT 80, ¶ 22. From that distinction, the Court infers architects and engineers qualify u nder the professional services exception.

Under these circumstances, the Court cannot rule e nvironmental consultants are outside of the professional services exception. The Court r equires facts to make this decision. As suggested in Long Trail House , architects and engineers are within the exception

. See id. The Court would require facts relating to the practices of environmental engineers and information about the specific practices of ECS. The Court cann ot decide whether environmental consultants fall within the professional services exception on the basis of this motion to dismiss alone. See

Bock , 2008 VT 81, ¶ 4.

The Court must deny Defendant’s motion to dismiss. At least for a motion to dismiss, Defendant has well pleaded claims for assigned prof essional negligence, negligent misrepresentation, and breach of contract. See id . Nothing in this order changes the Court’s August 30, 2012 order on Defendant’s motion to dism iss.

5. Plaintiff’s Motion to File a Surreply

Defendant also argues the Court should deny Plainti ff’s motion to file a surreply because it raises no new legal issues. Vermont case law on when to allow surreplies is relatively undeveloped. See e.g., Needham v. Coordinated Apparel Grp., Inc., 174 Vt. 263, 265 n.1 (2002); Colchester v. Vt. Dep’t of Taxes , Nos. S0861-10 CnC, S0933-10 CnC, S1524-10, CnC, 2 011 WL 8472917 (Vt. Super. Ct. Aug. 24, 2011); In re: Appeal of Colchester , No. S0933-10 CnC, 2011 WL 346535 (Vt. Super. Ct. Jan. 28, 2011). Judge Too r faced an opposition to a surreply because6

it was not accompanied by a motion and recited cumu lative arguments. Colchester , 2011 WL 8472917, n.4. The court found neither “of those arg uments as a reason to disregard the surreply.”

Id. In a separate case, the court allowed a surreply t o clarify the arguments and considered the response to the surreply. In re: Appeal of Colchester , 2011 WL 346535.

The Court allows the Plaintiff’s surreply and Defen dant’s response to the surreply to the extent it is helpful in clarifying the arguments. See id. In particular, the Court found the

discussion of the Vermont survival of causes statut e to be helpful and not duplicative of the arguments in the earlier filings. Accordingly, the Court grants the motion to file a surreply.

Order

The Court denies Defendant’s Motion to Dismiss. The Court grants Plaintiff’s motion to file a surreply.

Dated at Newfane, Vermont on February, 2013

Karen R. Carroll Superior Court Judge