Case Name: David Walsh v. Frank Cluba and Good Stuff, Inc.
Court: Vermont Supreme Court
Jurisdiction: Vermont
Decision Date: 2015-02-13
Citations: 198 Vt. 453
Docket Number: No. 13-134
Parties: David Walsh v. Frank Cluba and Good Stuff, Inc.
Judges: Present: Reiber, C.J., Dooley, Skoglund and Robinson, JJ., and Morse, J. (Ret.), Specially Assigned
Reporter: Vermont Reports
Volume: 198
Pages: 453–481

Head Matter:
2015 VT 2
David Walsh v. Frank Cluba and Good Stuff, Inc.
[117 A.3d 798]
No. 13-134
Present: Reiber, C.J., Dooley, Skoglund and Robinson, JJ., and Morse, J. (Ret.), Specially Assigned
Opinion Filed February 13, 2015
Frank P. Urso of Reis Urso & Ewald, PC, Rutland, for Plaintiff-Appellee/Cross-Appellant.
Brice Simon of Breton & Simon, PLC, Stowe, for Defendant-Appellant/Cross-Appellee Cluba.
Ronald I. Merelman, Stowe, for Cross-Appellee Good Stuff, Inc.

Opinion:
Skoglund, J.
¶ 1. This case concerns a dispute over damage to a leased commercial space located on Church Street in Burlington, Vermont. The case was tried before a jury, which awarded plaintiff, landlord David Walsh, just under $11,000 in damages attributable to defendant, tenant Frank Cluba. Following the jury verdict, the trial court awarded Walsh over $44,000 in attorney's fees. Cluba appeals, arguing that the court erred by allowing Walsh to testify on the reasonableness of repair work done after Cluba vacated the property and by awarding Walsh an unreasonable amount of attorney's fees under the circumstances. Walsh cross-appeals, arguing that the court erred by dismissing his claims against defendant Good Stuff, Inc., the business that Cluba and his partner incorporated shortly after Cluba signed the initial lease of the subject property. We affirm.
¶ 2. In August 2004, Cluba signed a three-year lease agreement for the rental of commercial space on Church Street. Two months later, in October 2004, Cluba and his business partner incorporated Good Stuff, Inc., of which Cluba was the president and a director, and turned over possession of the space to Good Stuff for the sale of adult novelties. The lease expired in August 2007, but Good Stuff continued occupying the space and paying rent until vacating the premises in October 2009. A provision in the lease agreement stated that any permissive holdover after the expiration of the lease shall be on a month-to-month basis, provided that all terms and conditions of the lease remained in full force during the holdover period.
¶ 3. Walsh sued Cluba in January 2010, alleging in his complaint that Cluba had defaulted on an extended lease agreement in effect through September 2011 and had left the premises in a damaged state. He sought damages for, among other things, unpaid rent, attorney's fees, and the cost of repairing the damaged premises. In November 2010, Walsh moved to amend the complaint to include Good Stuff as a defendant, citing authority for the proposition that a corporation formed after the execution of a contract previously executed by a promoter of that corporation may, by accepting the benefits of the contract, ratify the contract and thus be bound by it, even without formal or documented action. See Rich v. Chadwick, 136 Vt. 122, 124, 385 A.2d 677, 678 (1978) (citing Koerber v. Middlesex Coll., 128 Vt. 11, 258 A.2d 572 (1969), as "authority for the proposition that a subsequently formed corporation may, by accepting the benefits of a contract, ratify the contract, even without formal or documented action"). The court granted the unopposed motion, and in December 2010, Walsh filed an amended complaint, alleging in part that Good Stuff, through its agent Cluba, had ratified the lease Cluba signed and then defaulted on an agreed extension of that lease.
¶4. In August 2011, defendants filed a motion for partial summary judgment in which they argued in relevant part that Good Stuff should be dismissed from the case because Walsh knew that the lease agreement was only with Cluba, Good Stuff never ratified the agreement, and Walsh made no attempt to bind Good Stuff. Walsh opposed the motion, asserting that Good Stuff should remain in the case based on the doctrine of successor liability. In a January 12, 2012 decision, the trial court granted defendants' summary judgment motion, ruling that Good Stuff had not signed the lease and that Walsh had failed to point to any post-lease writing or action that could have bound Good Stuff to the lease. The court stated that the successor liability doctrine was inapplicable to this case, and that Walsh had abandoned his ratification theory by neither raising it nor offering facts to support it in his response to defendants' summary judgment motion. Accordingly, the court concluded that "[a]ll contractual claims against Good Stuff must be dismissed."
¶ 5. Walsh filed a motion to clarify, stating that a dispute had arisen among the attorneys as to whether the court's order had dismissed Good Stuff from the case, and asking the court to allow him to amend the complaint a second time to add a negligence claim against Good Stuff to seek damages incurred as the result of necessary repairs after defendants vacated the subject property. Over defendants' objections, the court granted the motion, and Walsh filed a second amended complaint alleging that defendants, including Good Stuff as the party in possession of the property, were liable for damages resulting from the cost of repairing the property after it was vacated.
¶ 6. A jury trial was held over two days in November 2013. At the close of plaintiff's case, Good Stuff moved, pursuant to Vermont Rule of Civil Procedure 50, for judgment as a matter of law with respect to Walsh's negligence claim. Good Stuff argued that Walsh had not claimed anything other than economic losses, which were not recoverable in tort. After noting that Good Stuff was a third-party beneficiary contractually bound by the lease, Walsh argued that the lease had expired and there was no valid extension of the lease, making Good Stuff an at-will tenant who had an independent duty towards Walsh. He also argued that the economic-loss rule did not apply because he was claiming physical damage to property in addition to economic losses. The trial court granted Good Stuff's Rule 50 motion on the record, ruling that the economic-loss rule precluded the tort claim because the instant dispute was completely covered by Walsh's and Cluba's contractual relations and because the parties' duties were defined by the contract, which required the tenant to leave the premises in the condition in which he took them. At the conclusion of the trial, the jury awarded Walsh $10,793 in damages for breach of the lease agreement. In a February 26, 2013 decision following the jury verdict and a hearing on Walsh's motion for attorney's fees, the trial court awarded Walsh $44,600 in attorney's fees.
¶ 7. On appeal, Cluba argues that the trial court committed reversible error by (1) allowing Walsh to testify on the necessity and reasonableness of the repair work done on the premises, and (2) awarding Walsh an unreasonable amount of attorney's fees, considering the totality of the circumstances. Walsh cross-appeals, arguing that the court erred by (1) dismissing his contractual claims against Good Stuff on summary judgment, and (2) granting Good Stuff judgment as a matter of law during the trial on his negligence claim.
¶ 8. We begin with Cluba's evidentiary claim of error. Cluba argues that it was reversible error to allow Walsh to testify regarding the necessity and reasonableness of repair costs because Walsh's testimony was not based on his own perceptions and thus violated Vermont Rule of Evidence 701. Cluba contends that because Walsh's property manager had overseen the repair work, she was the only person with first-hand knowledge regarding the need for the work — and yet, despite being subpoenaed, she never appeared at trial to link Walsh's testimony on the cost of the work to her anticipated testimony confirming the need for the work. According to Cluba, because Walsh's testimony was based almost exclusively upon information ascertained from his property manager rather than his own perceptions, the trial court's admission of the testimony over his objection constituted an abuse of discretion and a violation of Rule 701, thereby depriving him of a fair trial. We disagree.
¶ 9. Rule 701 provides that a lay witness' testimony concerning the witness' opinions or inferences is limited to opinions or inferences that are "(a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical or other specialized knowledge within the scope of Rule 702."
¶ 10. Walsh testified that the subject property was in good condition when he leased it to Cluba but was not in a similar condition when defendants vacated it. When Walsh began listing the various repairs necessary to restore the property to its condition at the time he leased it to Cluba, Cluba's attorney objected on grounds of the lack of a foundation for the testimony and a violation of Rule 701. At an ensuing bench conference, Cluba's attorney asserted that Walsh had no personal knowledge of what repairs were needed because his property manager had handled the repair work. At one point during the bench conference, Walsh's attorney stated that he intended to have the property manager testify. After the trial court ruled that it would "just take it as it comes," the direct examination of Walsh resumed.
¶ 11. Walsh then testified that he visited the subject property along with his property manager, Cluba, and Cluba's partner in November 2009 shortly after defendants had vacated it. He agreed that he got "a really good look at the condition of the premises." He testified that, at his instruction, the property manager took photographs of the premises and turned them over to him. He identified dozens of photographs as accurately depicting the condition of the premises at the time defendants vacated it, and those photographs were admitted into evidence without objection. Referring to the photographs, Walsh then proceeded to testify as to all the repairs required to restore the property to the condition in which he had leased it to Cluba, including: (1) replacing sheetrock destroyed by defendants removing strapping and slatwalls that had held their products; (2) dealing with dangling electrical wires left after the removal of fixtures; (3) repairing and painting trim and window frames; (4) repairing broken ceiling tiles; (5) repairing a damaged door; and (6) repairing components of the heating system that had been damaged.
¶ 12. Walsh further testified that his property manager gave him copies of the invoices for the required repair work. The court sustained Cluba's hearsay objection to admission of the invoices themselves, but allowed Walsh to testify as to what he paid to repair the damage to the premises observed after defendants left. Walsh then agreed that he reviewed, audited, and paid "each and every invoice related to repair costs." He expressed certainty that his written summary of those costs contained in. an exhibit reflected payments that he had actually made as the result of damage done to the premises by defendants. The trial court admitted the exhibit without objection after Walsh explained the basis for each of the individual expenses set forth in the summary. Walsh also testified that he had thirty-three years' experience as a landlord and knew how to deal with contractors and not spend money unnecessarily.
¶ 13. Apart from the fact that Cluba fails to cite specific testimony that was the subject of his general Rule 701 objection, we find no merit to his objection to Walsh's testimony concerning the repair work that was done. Walsh testified as to his personal knowledge of the condition of the premises both when he leased it to Cluba and when defendants vacated it. He also testified that he personally audited the invoices for the work done to repair the premises. Thus, his testimony regarding the repairs was rationally based on his own perceptions, and the trial court did not abuse its discretion in admitting it. See Reporter's Notes, V.R.E. 701 (noting "broad discretion under this rule to allow 'lay' opinions where it is 'helpful' ").
¶ 14. Cluba's second claim of error is that the trial court abused its discretion by awarding Walsh an unreasonable amount of attorney's fees under the circumstances of this case, including that: (1) defendants prevailed on a majority of the issues litigated; (2) at least $8000 of the fees awarded to Walsh were for Walsh's unnecessary and unsuccessful litigation against Good Stuff; (3) Walsh's attorney acknowledged that Walsh was not likely to prevail on the most prominent claim in his complaint — the alleged lease extension; and (4) the attorney's fee award was unreasonably disproportionate to the damage award. According to Cluba, the attorney's fee award is unreasonable considering these factors, particularly given that the issues in the case were neither novel nor complex and no specialized skill was required to litigate the case.
¶ 15. Generally, under the "American Rule," parties bear their own litigation costs, including attorney's fees, unless provided otherwise by contract or statute. L'Esperance v. Benware, 2003 VT 43, ¶ 21, 175 Vt. 292, 830 A.2d 675. In this case, the parties do not dispute that the lease agreement provided for an award of attorney's fees based on a breach of the agreement, but that the fees must be reasonable. In determining a reasonable attorney's fee award, courts first calculate a "lodestar figure" representing "the number of hours reasonably expended on the case multiplied by a reasonable hourly rate," and then may adjust "that fee upward or downward based on various factors," including "the experience of the attorney, and the results obtained in the litigation." Id. ¶ 22; accord Kwon v. Eaton, 2010 VT 73, ¶ 21, 188 Vt. 623, 8 A.3d 1043 (mem.). Because the adequacy of a trial court's award "depends on the unique facts of the underlying case," and the trial court is "in the best position to evaluate the reasonableness of legal fees" in a particular case, we "afford a trial court's determination as to the amount of an award great discretion and will disturb it only if the court has abused that discretion." Kwon, 2010 VT 73, ¶ 13, 22.
¶ 16. At the hearing on Walsh's motion for attorney's fees, Cluba argued that: (1) Walsh should not be awarded fees incurred as the result of him pursuing his eventually abandoned claim that Cluba had entered into a lease extension or attempting to make Good Stuff jointly liable for the damages; and (2) the requested fees were disproportionate to the jury's compensatory award. Cluba did not attempt to parse the reasonableness of particular legal fees claimed by Walsh, but rather argued that $10,000 would be a reasonable amount of attorney's fees in a case like this. Walsh's expert at the hearing testified that approximately $8300 of Walsh's attorney's fees were spent on making Good Stuff part of the case, but that it would have been malpractice not to have attempted to add Good Stuff as a defendant under the circumstances of this case. The expert further testified that Walsh's attorney's fees were reasonable in this case, and that it would be impossible to parse out what part of the expenses could be attributed to the lease-extension claim because all of Walsh's claims, including that one, were aimed at obtaining damages for breach of the lease agreement in this landlord-tenant dispute.
¶ 17. In a written decision in response to Walsh's motion for attorney's fees, the trial court found that both sides vigorously litigated the case, that the hourly rate of Walsh's attorney was reasonable for an experienced Vermont attorney, and that his billing record accurately reflected the number of hours he had spent on the case. The court identified the principal issue in dispute as whether the attorney's fees should be reduced by the time that Walsh's attorney spent on issues on which Walsh did not prevail — specifically, keeping Good Stuff in the case and claiming that Cluba had agreed to a lease extension. The court declined to reduce Walsh's attorney's fee award simply because he did not prevail on all of his claims or arguments. The court determined that all of the issues raised by Walsh's attorney were legitimate issues created by the circumstances of the case. The court stated that it was particularly appropriate, under the circumstances, for Walsh's attorney to attempt to keep Good Stuff in the case, and that the defense of the case might have gone in a different direction had he not done so. Accordingly, the court awarded Walsh the full amount of attorney's fees requested.
¶ 18. We conclude that the trial court's award of attorney's fees was within its wide discretion. At the outset, we reject Cluba's argument that the trial court should have reduced the award because he was the prevailing party on the majority of issues raised. Cluba did not make this argument per se before the trial court but rather made the related argument that the award should be reduced to the extent he prevailed on the lease-extension issue and whether to keep Good Stuff in the case. Without question, the trial court acted within its discretion in treating Walsh as the prevailing party, considering that the jury awarded him significant compensatory damages based on its conclusion that Cluba had breached the lease agreement. Cf. Burton v. Jeremiah Beach Parker Restoration & Constr. Mgmt. Corp., 2010 VT 55, ¶ 8, 188 Vt. 583, 6 A.3d 38 (mem.) (stating that trial court has considerable discretion and flexibility in determining who is prevailing party in awarding attorney's fees under prompt payment act).
¶ 19. Moreover, as Walsh's expert stated, Walsh's abandoned lease-extension claim was one of the claims aimed at obtaining damages for Cluba's alleged breach of the lease agreement. The trial court did not abuse its discretion by refusing to reduce the attorney's fees award based on Walsh's lack of success on one of the theories litigated to demonstrate a breach of that agreement. See id. ¶ 12 (affirming trial court's ruling that it was not required to break down winning and losing claims to determine reasonableness of attorney's fee award); Elec. Man, Inc. v. Charos, 2006 VT 16, ¶ 9, 179 Vt. 351, 895 A.2d 193 (rejecting request under prompt payment act to break lawsuit into series of discrete claims so that hours expended can be divided and compensated on claim-by-claim basis); L'Esperance, 2003 VT 43, ¶24 (concluding that trial court did not abuse its discretion by finding that cases involved common core of facts and by refusing to view lawsuit as series of discrete claims such that hours expended could be divided and compensated on claim-by-claim basis); cf. Human Rights Comm'n v. LaBrie, Inc., 164 Vt. 237, 251, 668 A.2d 659, 669 (1995) (stating that, in considering reasonable amount of attor ney's fees, hours spent on claims "distinct in all respects" from successful claims should be excluded, but fee awards should not be reduced simply because plaintiff failed to prevail on every claim in lawsuit (quotation omitted)).
¶ 20. Similarly, the trial court did not abuse its discretion by declining to reduce the attorney's fee award based on Walsh's unsuccessful attempt to keep Good Stuff in the case. Walsh's expert testified that it would have been malpractice for Walsh's attorney not to seek to add Good Stuff as a defendant, given the circumstances of the case, and the trial court itself acknowledged that its decision to dismiss Good Stuff from Walsh's lawsuit was a close question that could go either way on appeal. Further, Good Stuff consisted of two persons, Cluba and a partner who, as Walsh pointed out, directed Good Stuff's move out of Walsh's premises and would have been deposed and called as a witness even if Walsh had not sought to make Good Stuff a defendant in the lawsuit.
¶ 21. We also reject Cluba's argument that the attorney's fee award must be reduced because of the 4-1 proportion between the attorney's fees awarded and the compensatory damages awarded by the jury. "An attorney does not receive a 'windfall' merely .because the award of attorney's fees is not proportionate to the award of damages." L'Esperance, 2003 VT 43, ¶27. The ultimate question "is not whether the attorney's fee award is proportional to the damages, but rather whether the fee award is reasonable given the demands of the case." Kwon, 2010 VT 73, ¶ 20. Here, the trial court found that both sides litigated this case vigorously, and Walsh's expert, whom the trial court obviously found to be credible, testified that Walsh's attorney acted reasonably in litigating the case. See L'Esperance, 2003 VT 43, ¶28 (stating that credibility and weight given to expert's testimony on reasonableness of attorney's fees "were determinations committed to the trial court's discretion, not ours"). On the record before us, we cannot conclude that the trial court abused its discretion by awarding Walsh attorney's fees in an amount four times the damages award. Cf. Kwon, 2010 VT 73, ¶ 21-22 (upholding $18,975 attorney's fee award to tenants who were awarded $4929 in damages); Vastano v. Killington Valley Real Estate, 2010 VT 12, ¶ 9-10, 187 Vt. 628, 996 A.2d 170 (mem.) (upholding $55,012 attorney's fee award even though prevailing party obtained comparatively low damage award of $7875).
¶ 22. We now turn to Walsh's cross-appeal issues. Walsh first argues that the trial court erred by dismissing his contractual claims against Good Stuff in its January 12, 2012 decision granting defendants' motion for partial summary judgment. In that decision, the trial court rejected Walsh's theory of successor liability, distinguishing the cases cited by Walsh, apparently based on the fact that there was no predecessor corporate entity for Good Stuff to succeed in this case. Cf. Gladstone v. Stuart Cinemas, Inc., 2005 VT 44, ¶ 35, 178 Vt. 104, 878 A.2d 214 (reversing trial court's summary judgment ruling of no successor liability in case involving purchase of one corporation by another); Cab-Tek, Inc. v. E.B.M., Inc., 153 Vt. 432, 437, 571 A.2d 671, 673 (1990) (concluding that trial court did not err in finding successor liability based on de facto merger of two corporations). The court also ruled that Walsh had abandoned its theory — initially argued in his motion to amend his complaint — that Good Stuff could be found liable based on it having ratified the lease after it was signed by Cluba acting as its agent. The court declined to consider the argument on the basis that it had neither been briefed nor supported by evidentiary material in Walsh's response to defendants' motion for summary judgment.
¶ 23. Walsh asserts that successor liability is "quite akin" to ratification, and that, in any event, he did not abandon the ratification theory, as evidenced by his stating (1) in his amended complaint that Good Stuff had ratified execution of the lease, and (2) in his statement of undisputed material facts that Good Stuff was bound by the lease agreement because Cluba signed the lease as its agent and Good Stuff collected all revenue from the business and paid Cluba's salary. We do not find these arguments persuasive.
¶ 24. On appeal, Walsh is essentially reviving his abandoned ratification argument. Indeed, in his appellate brief, Walsh relies principally on cases that he cited in his motion to amend his complaint to add Good Stuff as a defendant. Walsh did not cite those cases, however, in responding to defendants' motion for summary judgment, in which defendants asserted that Walsh knew he was contracting solely with Cluba, made no attempt to bind Good Stuff to the lease agreement, and could not produce any admissible evidence that Good Stuff ever ratified the agreement. Instead, Walsh relied solely on a theory of successor liability. Moreover, in the second amended complaint in which Walsh added his negligence claim, Walsh dropped his claim that Good Stuff "subsequently ratified the execution of the Lease" and instead claimed that Good Stuff "subsequently occupied the premises along with the Defendant Cluba and jointly operated a retail business therein."
¶ 25. Tellingly, after the trial court's rejection of that theory and its refusal to consider the ratification theory based on Walsh having abandoned it, Walsh filed a motion to clarify in which he did not dispute either the court's rejection of his successor liability theory or its refusal to consider his abandoned ratification theory. Rather, Walsh asked the court to keep Good Stuff in the case based on a negligence theory of liability, which the court ultimately rejected based on the economic-loss rule. In short, with respect to Good Stuff, Walsh made the tactical decision to abandon his contractual claims and instead rely on a negligence claim of liability. He now seeks to backtrack from that strategy by claiming on appeal that the trial court erred in not addressing his ratification theory — even though he pointedly did not challenge the trial court's ruling below in his motion to clarify. On this record, we decline to consider the argument. See Beyel v. Degan, 142 Vt. 617, 619, 458 A.2d 1137, 1138 (1983) (stating that party who fails to object to trial court ruling and proceeds to trial cannot later claim error in ruling on appeal); cf. Pinewood Manor, Inc. v. Vt. Agency of Transp., 164 Vt. 312, 320, 668 A.2d 653, 659 (1995) (stating that party sufficiently apprised trial court of its claim of error and adequately preserved the claim for review on appeal by filing motion to amend).
¶ 26. Walsh's second cross-appeal argument is that the trial court erred by dismissing his negligence claim against Good Stuff based on the economic-loss rule. At the close of plaintiff's case, defendants moved for judgment as a matter of law under Vermont Rule of Civil Procedure 50 with respect to the remaining negligence claim against Good Stuff. Following argument by counsel, the trial court granted the motion, ruling that the economic-loss rule barred the negligence claim because the relationship between the parties was entirely occupied and defined by the lease agreement. On appeal, Walsh argues that the court erred in barring his negligence claim against Good Stuff based on the economic-loss rule because: (1) he was claiming property damage, in addition to economic loss, as the result of Good Stuff's actions; and (2) in any event, he had a special landlord-tenant relationship with Good Stuff that warranted exemption from the economic-loss rule.
¶ 27. The economic-loss rule "maintain[s] a distinction between contract and tort law" by "prohibiting] recovery in tort for purely economic losses." Long Trail House Condo. Ass'n v. Engelberth Constr., Inc., 2012 VT 80, ¶ 10, 192 Vt. 322, 59 A.3d 752 (quotation omitted); see Wentworth v. Crawford & Co., 174 Vt. 118, 127, 807 A.2d 351, 357 (2002) ("[O]ur caselaw prohibits a claimant from seeking damages for contractual losses through tort law."). Tort law imposes duties to protect the public from harm, and thus negligence actions are generally limited to unanticipated physical injury, while contract law allows parties to protect themselves through bargaining. Long Trail, 2012 VT 80, ¶ 10; Springfield Hydroelectric Co. v. Copp, 172 Vt. 311, 314, 779 A.2d 67, 70 (2001) (stating "that negligence actions are best suited for resolving claims involving unanticipated physical injury, particularly those arising out of an accident," while contract actions "are generally more appropriate for determining claims for consequential damage that the parties have, or could have, addressed in their agreement" (quotation omitted)). The determining factor in deciding whether' to apply the economic-loss rule is not whether privity exists but rather whether there is "a duty separate and apart from a contractual duty." Long Trail, 2012 VT 80, ¶ 13.
¶ 28. "Negligence 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." O'Connell v. Killington, Ltd., 164 Vt. 73, 77, 665 A.2d 39, 42 (1995). The physical harm may be to property rather than persons, but injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which relief lies in contract rather than tort law. See E. River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 871 (1986) (holding that no products liability claim lies in admiralty when commercial party alleges injury only to product itself, resulting in purely economic loss, insofar as "[t]he tort concern with safety is reduced when an injury is only to the product itself'); see also Paquette v. Deere & Co., 168 Vt. 258, 260, 719 A.2d 410, 412 (1998) ("Some jurisdictions have allowed recovery for damage to the product itself, though most often only if the loss occurred in the context of a dangerous situation such as an accident."); cf. Long Trail, 2012 VT 80, ¶ 11 (stating that remedy for economic losses such as cost of repair resulting from construction defects sounds in contract rather than tort). Thus, with respect to property damage, the economic-loss rule generally applies to bar tort claims when the alleged damage is to property that is the subject of a contract between the parties. Cf. Valley Forge Ins. Co. v. Sam's Plumbing, LLC, 207 P.3d 765, 767-68 (Ariz. Ct. App. 2009) (refusing to apply economic-loss rule to bar tort action in which plumbing contractor's alleged negligence caused damage not only to gas lines that were subject of contract with commercial tenant but also to other parts of landlord's shopping mall); Comptech Int'l v. Milam Commerce Park, Ltd., 753 So. 2d 1219, 1226 (Fla. 1999), modified by Tiara Condo. Ass'n v. Marsh & McLennan Cos., 110 So. 3d 399 (Fla. 2013) (refusing to apply economic-loss rule where damage to commercial tenant's computers caused by alleged negligence of contractor hired by landlord to renovate leased space constituted damage to property other than warehouse itself, which was subject of lease agreement).
¶ 29. Here, Walsh sought damages to his commercial property that was the subject of the lease agreement between him and his tenant, Cluba. The agreement specifically addressed the contractual remedy for any damage to the property resulting from Cluba's lease of the property. The agreement provided that fixtures could be removed before the tenant vacated the premises as long as the tenant immediately repaired any damage caused by removal of the fixtures and that their removal did not cause substantial damage to the premises. The agreement also stated that in the event of a default by the tenant, the tenant would be required to pay the landlord all expenses incurred in repossessing the property and getting the property in good order so that it could be re-rented. Good Stuff occupied the property as the result of Cluba being its president and director and having signed the lease with Walsh. Thus, although Walsh and Good Stuff were legal strangers, any duty Good Stuff had concerning the subject property was established by virtue of the lease agreement. Under these circumstances, the trial court did not err in dismissing Walsh's negligence claim based on the economic-loss rule. See Springfield Hydroelectric Co., 172 Vt. at 314, 779 A.2d at 70 ("As our caselaw makes clear, claimants cannot seek, through tort law, to alleviate losses incurred pursuant to a contract.").
¶ 30. Walsh's argument that he had a "special relationship" with Cluba that precludes application of the economic-loss rule is misplaced. The question is whether the nature of the relationship — most often a professional relationship such as doctor-patient or attorney-client — is such that it "automatically triggers[s] an independent duty of care that supports a tort action even when the parties have entered into a contractual relationship." Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1263 (Colo. 2000); see Springfield Hydroelectric Co., 172 Vt. at 316-17, 779 A.2d at 71-72 (discussing professional services subject to special relationship exception to economic-loss rule). Here, no such professional relationship exists. Nor did Good Stuff enter into a contract with Walsh, although any duty as a tenant not to damage the leased property arises from the contract signed by Cluba and Walsh.
¶ 31. Walsh does not argue that, in the event we uphold the trial court's dismissal of his contractual claims against Good Stuff, the lack of privity between him and Good Stuff precludes application of the economic-loss rule. Rather, the only bases that he contends preclude application of the economic-loss rule are: (1) the damage to property and (2) his special relationship with Good Stuff. We recognize that the trial court dismissed Walsh's contractual claims against Good Stuff, but the dismissal was based on its determinations that successor liability did not apply and that Walsh had abandoned his ratification theory — determinations that we have upheld on appeal. Walsh's ratification theory, had he not abandoned it, may have ultimately been successful in preserving his contractual claims against Good Stuff. See Rich v. Chadwick, 136 Vt. at 124, 385 A.2d at 678 ("[A] subsequently formed corporation may, by accepting the benefits of a contract, ratify that contract, even without formal or documented action"). But because Walsh abandoned that theory, he was never able to prove it; as a consequence, he lost his potential contractual claims against Good Stuff. In any event, as noted, the existence of privity is not necessarily the determining factor in whether to apply the rule to bar a tort claim. Long Trail, 2012 VT 80, ¶ 13.
¶ 32. Given the unique circumstances of this case, the trial court did not err in dismissing Walsh's negligence claim against Good Stuff under the economic-loss rule. See 3 Dobbs, supra, § 607, at 463 (stating that no single normative principle underlies economic-loss rule's rejection of many potential claims and that "details and factual contexts are likely to be more compelling than a sweeping rule"). Notwithstanding the dissent's assertion to the contrary and its predictions of dire consequences threatening "the very balance . of tort and contract law," we are not adopting in this case a "new approach" to the economic-loss rule. Post, ¶ 48. Indeed, dissenters to decisions both applying and refusing to apply the economic-loss doctrine in specific cases have claimed that the decisions will wreak havoc with tort or contract law. See, e.g., Tiara Condo. Ass'n, 110 So. 3d at 410, 411 (Polston, C.J., dissenting) (stating that, by limiting application of economic-loss rule, "the majority greatly expands the use of tort law at a cost to Florida's contract law," thereby "seriously undermining]" the latter law); id. at 411, 414 (Canady, J., dissenting) (stating that majority's decision "sets a new course for the expansion of tort law at the expense of contract law," which will result in "the prospect of every breach of contract claim being accompanied by a tort claim"). In truth, as noted in the above treatise, the application of the doctrine is highly fact-specific. Our decision today, based on the facts of this case, will not alter the balance of tort and contract law in Vermont, as the dissent predicts.
Affirmed.
The dissent suggests that the "other property" rule has no application in cases other than products liability claims, and posits an actionable duty in tort to prevent economic losses with respect to the subject of the contract. The decisions cited above did not involve such claims, but nonetheless suggest that the economic-loss rule would have applied to preclude tort claims if the damage had been solely to the leased premises itself rather than to other property contained within the leased premises. On the other hand, the dissent does not cite any cases in which a court refused to apply the economic-loss rule in situations where there were contract and tort claims concerning damage only to the leased premises. Cf. 3 D. Dobbs, et al., The Law of Torts § 615, at 495 (2d ed. 2011) (stating that although economic-loss rule generally covers "only stand-alone economic loss, not property damage, some courts have insisted that even when the defendant damages the plaintiffs tangible property, the plaintiff who has some kind of contractual relationship with the defendant has no negligence claim," particularly "when the defendant has damaged or refused to return the plaintiffs bailed property").
Apart from Walsh's arguments, the dissent provides its own basis for why we should not apply the economic-loss rule in this case — Good Stuff had an independent tort duty under the common law not to damage or lay waste to plaintiff's property. In so reasoning, the dissent relies primarily on a decision by the Washington Supreme Court holding that "the duty to not cause waste is a tort duty that arises independently of a lease agreement" such that "an aggrieved lessor may pursue damages concurrently under theories of tort and breach of lease." Eastwood v. Horse Harbor Found., Inc., 241 P.3d 1256, 1267 (Wash. 2010). But, as a leading treatise has noted, some courts have held that "if the contract sets a duty relevant to the claim, the contract will control even if there would also be a tort duty independent of the claim." 3 Dobbs, supra, § 615, at 490. According to the treatise:
The economic loss rule does not apply to bar the tort claim for economic harms if the defendant breached a duty of care that was independent of the contract. This may occur because the duty did not arise out of the contract and is not intertwined with the contract duty of performance. Phrased differently, the tprt duty, to be actionable, must not be "interwoven" with the contract.
Id.; see also BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004) ("If we conclude that the duty of care owed by [the parties] was memorialized in the contracts, it follows that the plaintiff has not shown any duty independent of the interrelated contracts and the economic loss rule bars the tort claim and holds the parties to the contracts' terms."); Parr v. Triple L & J Corp., 107 P.3d 1104, 1108 (Colo. App. 2004) (holding that although defendant president of defendant leasing company did not sign lease in his individual capacity and "could have an independent, well-recognized obligation imposed by tort law to refrain from intentional interference with a prospective business advantage," economic-loss rule barred tenants' tort claim because source of defendants' duty not to interfere with assignment of lease was parties' lease agreement and thus it was improper "to analyze the existence of an independent tort duty in determining whether an economic loss may be recovered"); Gulfstream Aerospace Servs. Corp. v. U.S. Aviation Underwriters, Inc., 635 S.E.2d 38, 45, 47 (Ga. Ct. App. 2006) (concurring with other courts that tort duty is not independent so as to preclude application of economic-loss rule if source of duty stemmed from parties' contract); Grynberg v. Questar Pipeline Co., 2003 UT 8, ¶ 53, 70 P.3d 1 (holding that there is no independent tort duty because "the exact same conduct is described in both the contract and tort claims, and the exact same facts and circumstances are at play, [which] is indicative of . . . overlapping duties"). We need not delve into the subtleties of this issue in this case, other than noting that "[t]he key to determining the availability of a contract or tort action lies in determining the source of the duty that forms the basis of the action." AZCO Constr., 10 P.3d at 1262. Here, the alleged tort duty was plainly interwoven with the subject contract — indeed, the contract was the source of the duty.