Court Opinion

ID: 4714508
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:41:13.744951+00
Date Added: 2024-06-11T08:07:22.373135
License: Public Domain

Madsen, C.J.
¶41 (concurring/dissenting) — Legal doctrines develop, and course corrections are frequently made, in response to factual circumstances that demonstrate the need for refinement of a rule of law or legal analysis. The lead opinion’s new approach to the economic loss rule is *464more than a course correction. It is, in effect, a wholesale rejection of our prior cases. In exchange, the lead opinion substitutes an analysis that involves little more than this court’s ad hoc determination of whether a duty should lie. I am not convinced that the “independent duty” approach is an improvement in determining when parties will be held to their contract remedies.9
¶42 But there is a more immediate problem with the lead opinion’s analysis in this case. The lead opinion should not even engage in its “independent tort” analysis because without question, the losses that Seattle Monorail Services (SMS) suffered are not economic losses within the meaning of the economic loss doctrine and there is no basis for assuming that a choice must be made between contract and tort remedies. This being the case, whether Affiliated FM Insurance Company, which is subrogated to any rights that SMS has to proceed against LTK Consulting Services, Inc., can seek a tort remedy for those losses is a matter to be decided solely under settled tort law principles without regard to the economic loss rule. The answer to the United States Court of Appeals for the Ninth Circuit’s certified question is that in the circumstances of this case, the economic loss rule is not implicated at all and therefore it certainly does not apply to bar Affiliated FM’s tort claims.
Analysis
¶43 The lead opinion mistakenly assumes that there is an issue about whether Affiliated FM, standing in its *465insured’s SMS’s shoes, is seeking relief for economic losses for which contractual remedies are available and that there is therefore a question about whether the economic loss rule applies in this case. The lead opinion says that “where a court applying Washington law is called to ‘distinguish between claims where a plaintiff is limited to contract remedies and cases where recovery in tort may be available,’ . . . the court must apply the . . . ‘independent duty doctrine.’ ” Lead opinion at 449 (quoting Eastwood v. Horse Harbor Found., 170 Wn.2d 380, 389, 242 P.3d 825 (2010)). But here there is no question of any contract remedies being available and the economic loss rule is not implicated at all.
¶44 However, inventing its own hypothetical set of facts, the lead opinion claims that it is appropriate to apply its “independent tort” analysis notwithstanding the lack of any actual contractual relationship between SMS and LTK Consulting that would implicate the economic loss rule. The lead opinion points to SMS’s agreement with the city of Seattle to carry fire insurance and says that SMS could have negotiated with the city to obtain the right to contract for engineering and other repair services. Lead opinion at 448 n.1. The lead opinion evidently believes this would sufficiently bring the case within the class of cases where both contract and tort remedies are permissible and a court accordingly must decide whether the economic loss rule bars tort remedies.
¶45 In the first place, the lead opinion’s explanation assumes that the city would have relinquished its rights as owner of the monorail to contract for such services. SMS had only the right to operate the monorail as a concessionaire. It did not have ownership rights and nothing suggests the city would have relinquished its own rights. The lead opinion’s assumption about nonexistent facts cannot substitute for SMS in actual fact having the right and responsibility to contract for engineering services.
¶46 In the second place, the relevant relationship is that between SMS and LTK Consulting. Not only would SMS have had to have had the right to contract for engineering, *466it would have had to have actually exercised this right and entered a contract with LTK Consulting. But just as nothing in the record even hints that SMS would ever have had the right to contract with LTK Consulting, it obviously never entered into any such contract with LTK Consulting. There was never any contract between SMS and LTK Consulting, never any expectations of any bargain. There simply was never any relationship between SMS and LTK Consulting, nor any recognized basis in our law for presuming circumstances that would give rise to the possibility that the economic loss rule might apply.
¶47 And third, the lead opinion’s explanation of why the economic loss rule might be implicated perpetuates an unfortunate misreading of our decision in Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007). Some parties and courts have taken statements and portions of that decision out of context to conclude that if a party could have contracted or negotiated a matter, then the economic loss rule is implicated. That is much too broad a principle and it has never been the law in this state, but the lead opinion does the same thing when it says that SMS could have negotiated with the city to obtain the right to contract for engineering and other repair services.
¶48 Alejandre provides an extended discussion of the economic loss rule as it developed prior to the “independent duty” approach favored by the lead opinion, including a discussion of why the rule exists and when it is implicated. As to the latter, the Alejandre opinion can only fairly be read, when read properly as a whole, to say that in general the economic loss rule is implicated when the parties are in a contractual relationship and could or should have negotiated allocation of risks associated with the subject matter of their agreement. The losses must be economic losses for which this risk allocation could or should have been negotiated, with these losses not being in the nature of personal injury or injury to property.
*467¶49 Here, SMS simply had no contractual relationship with LTK Consulting and the economic loss rule does not apply.
¶50 There is not even a colorable claim that a choice must be made between contract remedies and tort remedies, and this is what the lead opinion should say. We should not engage in an analysis to decide whether the economic loss rule would apply when there is no way in which it could ever apply under the facts here.
¶51 One has to ask the question — if we simply presume economic losses in a case and therefore engage in the “independent tort” analysis, what happens if we find no independent tort? We certainly would not apply the economic loss rule if it is not implicated.
¶52 The lead opinion has the whole analysis upside down.
¶53 This is a huge mistake in analysis and presents an extremely distorted assumption about what constitutes economic losses implicating the economic loss rule. This case is not about whether Affiliated FM will be held to SMS’s contract remedies under the concessionaire agreement between the city of Seattle and SMS or about any contract remedies existing under the city’s contract with LTK Consulting. It is instead about whether Affiliated FM can seek tort remedies in an action against LTK Consulting, with which SMS had no contract or, indeed, any relationship at all.
¶54 In general, the economic loss rule “ ‘prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract’ ” because “ ‘tort law is not intended to compensate parties for losses suffered as a result of duties assumed only by agreement.’ ” Factory Mkt., Inc. v. Schuller Int’l, Inc., 987 F. Supp. 387, 395 (E.D. Pa. 1997) (quoting Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir. 1995); Palco Linings, Inc. v. Pavex, Inc., 755 F. Supp. 1269, 1271 (M.D. Pa. 1990)). This does not mean that if a loss occurs under a contract, i.e., any *468contract with anyone at all, then the loss is an economic loss within the meaning of the economic loss doctrine.
¶55 As the court has explained, the economic loss rule applies to limit recovery for economic losses to contract remedies “to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract.” Berschauer/ Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826, 881 P.2d 986 (1994); accord Alejandre, 159 Wn.2d at 684. In general, if the plaintiff and the defendant do not have a contract, there has been no give-and-take negotiation regarding allocation of risks. Absent a contract between the parties, the economic loss rule is never implicated at all.10
¶56 Here, Affiliated FM is not suing the city of Seattle and it is not seeking remedies under the contract SMS has with the city of Seattle nor, more importantly, is it trying to avoid remedies SMS has under the contract with the city in favor of tort remedies from the city. Affiliated FM is suing LTK Consulting, an engineering firm with which SMS did not have a contractual relationship11 (and therefore with which it never engaged in the negotiation of risks normal in the context of a contractual undertaking).
¶57 The federal district court similarly failed to appreciate that the question whether the economic loss rule applies arises in this case only if there was a breach of *469contract between SMS and LTK Consulting. It apparently accepted LTK Consulting’s argument in support of its motion for summary judgment that losses other than an injury to one’s own property or person are economic losses and outside the bounds of a tort action, regardless of any contract. The district court therefore focused on the question of what kind of a property interest, if any, SMS acquired in the monorail property under the SMS-city of Seattle Monorail Concession Agreement, and concluded that the economic loss rule applies because under its contract with the city of Seattle, SMS did not exercise the degree of possession and control over the trains sufficient to demonstrate ownership.
¶58 Certainly the nature of the injury can be important to the question since, for example, personal injuries are not within the scope of the economic loss rule. But the overarching inquiry into whether economic losses are at issue is an inquiry into whether there is a contract, breach of which is alleged to have caused the loss because, if it applies, the economic loss rule is designed to hold parties to their contract remedies rather than tort remedies.
¶59 A discussion of contractual risk allocation would be incomplete without addressing the construction cases, where lack of direct contractual privity does not preclude application of the economic loss rule. LTK Consulting relies heavily on one of these cases, Berschauer /Phillips, 124 Wn.2d at 822, but Berschauer /Phillips does not support its argument that the economic loss rule applies here. Rather, Berschauer/Phillips and the Colorado Supreme Court’s decision in BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 72-73 (Colo. 2004) explain why the economic loss rule is applied in the context of the interrelated disciplines and agreements that generally exist with respect to a construction project, even without direct privity between each of the design professionals, contractors, subcontractors, and inspectors that may be involved in development and construction of a building or the like. As is apparent from these cases, the nonprivity construction cases do not stand for a *470universal rule that privity is not required, nor do they stand for a broad rule that the nature of the property damage dictates in the first instance whether the economic loss rule applies.
¶60 In Berschauer/Phillips, a contractor sought to bring tort claims against an architect, a structural engineer, and an inspector, none of whom were in contractual privity with the contractor, alleging that defective design and negligent failure to inspect increased costs of construction and caused delay costs. The contractor alternatively sought to bring a tort claim for negligent misrepresentation under the Restatement (Second) of Torts § 552 (1977) for negligent misrepresentation. The court held that the economic loss rule barred the tort claims, despite the lack of direct contractual privity.
¶61 The court explained:
The economic loss rule marks the fundamental boundary between the law of contracts, which is designed to enforce expectations created by agreement, and the law of torts, which is designed to protect citizens and their property by imposing a duty of reasonable care on others. The economic loss rule was developed to prevent disproportionate liability and allow parties to allocate risk by contract.
We . . . maintain the fundamental boundaries of tort and contract law by limiting the recovery of economic loss due to construction delays to the remedies provided by contract. We so hold to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract. We hold parties to their contracts. If tort and contract remedies were allowed to overlap, certainty and predictability in allocating risk would decrease and impede future business activity. The construction industry in particular would suffer, for it is in this industry that we see most clearly the importance of the precise allocation of risk as secured by contract. The fees charged by architects, engineers, contractors, developers, vendors, and so on are founded on their expected liability exposure as bargained and provided for in the contract. . . .
*471A bright line distinction between the remedies offered in contract and tort with respect to economic damages also encourages parties to negotiate toward the risk distribution that is desired or customary. We preserve the incentive to adequately self-protect during the bargaining process. If we held to the contrary, a party could bring a cause of action in tort to recover benefits they were unable to obtain in contractual negotiations.
Berschauer/Phillips, 124 Wn.2d at 821, 826-27 (citations omitted).
¶62 In a similar vein, the Colorado Supreme Court also held that despite the lack of direct privity, the economic loss rule applied to bar a steel subcontractor’s tort claims against an engineering firm and an inspector alleging that an improper plan and negligent inspections caused cost overruns on a public works project. The Colorado Court of Appeals had held that the economic loss rule did not preclude the tort claims because, under the “independent duty” approach, a licensed engineer owes an independent duty of care under tort law to contractors and subcontractors with regard to plans and specifications that the engineer drafted and prepared and which were relied upon by the contractor or subcontractor. The court of appeals had also held that the inspector had the same duty of care in inspecting and directing the project. The Colorado Supreme Court reversed:
[The subcontractor] argues that the application of the economic loss rule is limited to cases where the parties contracted directly with each other for their rights and obligations. [The subcontractor] claims that it did not have an “opportunity . . . to bargain directly with [the inspector] and [the engineer] over the risk of the harm which would result from defective specifications and negligent project administration.” We disagree and hold that the economic loss rule applies when the claimant seeks to remedy only an economic loss that arises from interrelated contracts.
The economic loss rule applies between and among commercial parties for three main policy reasons, none of which *472depends upon or is limited to the existence of a two-party contract: (1) to maintain a distinction between contract and tort law; (2) to enforce expectancy interests of the parties so that they can reliably allocate risks and costs during their bargaining; and (3) to encourage the parties to build the cost considerations into the contract because they will not be able to recover economic damages in tort.
In the context of larger construction projects, multiple parties are often involved. These parties typically rely on a network of contracts to allocate their risks, duties, and remedies.
[Cjonstruction projects are multi-party transactions, but rarely is it the case that all or most of the parties involved in the project will be parties to the same document or documents. In fact, most construction transactions are documented in a series of two-party contracts, such as owner/ architect, owner/contractor, and contractor/subcontractor. Nevertheless, the conduct of most construction projects contemplates a complex set of interrelationships, and respective rights and obligations.
Fundamentals of Construction Law 4-5 (Carina Y. Enhada et al., eds., 2001).
In such a contract chain, the parties do have the opportunity to bargain and define their rights and remedies, or to decline to enter into the contractual relationship if they are not satisfied with it. Even though a subcontractor may not have the opportunity to directly negotiate with the engineer or architect, it has the opportunity to allocate the risks of following specified design plans when it enters into a contract with a party involved in the network of contracts. In this situation, application of the economic loss rule encourages a subcontractor to protect itself from risks, holds the parties to the terms of their bargain, enforces their expectancy interests, and maintains the boundary between contract and tort law.
The policies underlying the application of the economic loss rule to commercial parties are unaffected by the absence of a one-to-one contract relationship. Contractual duties arise just as surely from networks of interrelated contracts as from two-party agreements.
*473BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 72-73 (Colo. 2004) (some alterations in original) (citation omitted).12
¶63 Unlike Berschauer I Phillips and BRW, the present case does not involve the construction industry and the interconnectedness of related disciplines involved in constructing buildings and similar structures (or a similar commercial context involving such interconnectedness), where each entity knows of the involvement of the others and can negotiate risks by contract, including matters concerning the risks of potential liability. Instead, there was a contract between the city of Seattle and SMS, governing in great detail the operation of the monorail system. This contract is, as it is titled, a concession agreement between the city of Seattle and SMS that granted to SMS a conces*474sionaire’s right to operate the monorail system belonging to the city.
A concession agreement is akin to a lease, but distinct in that concessionaires do not take a proprietary interest in real property, but rather are given the privilege of operating in connection with governmental property under contractual terms that specify the scope of governmental permission. A concession agreement allows a private company to provide goods or services on public property that might otherwise be provided directly by government personnel.
Scott L. Cummings & Steven A. Boutcher, Mobilizing Local Government Law for Low-Wage Workers, 1 U. Chi. Legal F. 187, 199 (2009).
¶64 As an entirely separate matter, the city of Seattle contracted with LTK Consultants for that business’s services. It cannot be said that operating the monorail as a concessionaire, as SMS did, or doing engineering work for the city with respect to the monorail, as LTK Consulting did, contemplated a complex set of interrelationships with respective rights and obligations. There is also no evidence or even a hint of any history or practice common to either activity that is comparable to that in the construction industry, where it is routine for members of interrelated professional disciplines and contractors to engage in such a series of interconnected contractual arrangements — a process that is widely known and extremely common.
¶65 There is no reasonable basis for thinking that SMS should have or could have protected itself through contractual risk allocation from any alleged breach by LTK Consulting of LTK Consulting’s contract with the city. SMS had no contractual relationship with LTK Consulting. There is no basis to conclude that SMS was a third-party beneficiary of the contract between LTK Consulting and the city of Seattle. SMS’s losses are not remediable through any contract with defendant LTK Consulting.
¶66 The federal district court held that summary judgment must be granted in favor of LTK Consulting because *475the economic loss rule bars Affiliated FM’s tort claims. It does not. Absent any contract between SMS and LTK Consulting, there is no basis to conclude that SMS’s losses are economic losses within the meaning of the economic loss rule. Accordingly, on the facts here, the answer to the Ninth Circuit’s certified question is that the economic loss rule does not bar Affiliated FM’s tort claims. Whether there is a reason specific to tort law why such claims might be barred — unrelated to the economic loss rule — is a separate question that the district court did not address.13
Conclusion
¶67 The lead opinion erroneously assumes that economic losses are at issue. The economic loss rule is premised on the principle that if the risk of loss can be allocated in a negotiated contract, then a party to that contract will be held to the contract remedies if breach of the contract results in economic losses. Affiliated FM is not suing the city and is not seeking to avoid contract remedies under SMS’s contract with the city. Rather, Affiliated FM is suing LTK Consulting, an entity with which SMS has no contract. The lack of any such contract means there are no competing contract and tort remedies and no need to determine whether the economic loss rule will apply to bar claims for tort remedies.
*476¶68 The lead opinion’s huge assumption leads to its lengthy and misleading analysis, which is likely to muddle the entire area of law. Parties may well believe that the economic loss rule must be considered whenever commercial parties sue each other, and this, of course, is not the case. It is unfortunate that the lead opinion also may well encourage parties to make unnecessary or unavailing arguments in the mistaken belief that the court must assume that there is a question about whether the economic loss rule applies anytime there is a contract lurking anywhere in the record, regardless of the fact that it is not between the parties.
¶69 I would hold that the answer to the Ninth Circuit’s certified question is that the economic loss rule does not bar tort claims in this case because there was no contract between LTK Consulting and SMS and no basis under the facts of this case for applying the economic loss rule in the absence of contractual privity.
Alexander and J.M. Johnson, JJ., concur with Madsen, C. J.

 The lead opinion’s analysis posits that if a breach of contract is also a breach of an independent duty of care under tort law principles, then it is compensable under tort law. This is a significant departure from our prior understanding of the economic loss rule, which limits relief to contract remedies when losses were suffered as a result of breach of a contract. “Economic loss is a conceptual device used to classify damages for which a remedy in tort or contract is deemed permissible, but are more properly remedial only in contract.” Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 822, 881 P.2d 986 (1994). Necessarily, therefore, the economic loss rule is not implicated unless both contract and tort remedies are potentially available, and a tort remedy is not potentially available unless a duty is found. But if finding a tort duty is equivalent to finding an “independent duty” precluding application of the economic loss rule, one can legitimately ask what is left of the economic loss rule.

 We have recognized that strict contractual privity is not required in the construction industry where the various design professionals and contractors are involved in planning and building a building or other structure. The specialized rule relating to the “network” of contracts in such circumstances is not implicated here. I address this issue of privity below in the text.
The economic loss rule also applies under Washington’s product liability act (PLA), ch. 7.72 RCW, to exclude recovery in tort for economic losses, although the PLA does not prevent the recovery of economic losses under the Uniform Commercial Code, Title 62A RCW. See RCW 7.72.010(6); .020(2); Stanton v. Bayliner Marine Corp., 123 Wn.2d 64, 84-85, 866 P.2d 15 (1993).

 The lead opinion says that the contract between the city and LTK Consulting is not in the record but assumes that SMS was not a party to that contract. The Ninth Circuit’s order in this case states as a fact that SMS was not a party to the contract between LTK Consulting and the city.

 The lead opinion claims that Stuart v. Coldwell Bankers Commercial Group, Inc., 109 Wn.2d 406, 745 P.2d 1284 (1987) shows that the economic loss cases are not limited to cases where a contractual relationship exists and construction cases involving a single construction project. I am not going to pretend that all economic loss cases fall neatly into these categories because this is an area where courts across the country have not always decided cases in a cohesive manner.
Nonetheless, the primary area where the economic loss rule has been applied outside of contractual privity is in the construction context. I explain why in the text. Stuart does not undercut the explanation but instead the court there considered the economic loss rule in a different context, that of products liability. In Stuart, the plaintiff homeowners’ association sued the builder-vendor for construction defects in a condominium complex. The plaintiff sought to assert what the court called a “peculiar combination of tort and contract law, closely related to the law of products liability.” Id. at 418. The court explained the history of products liability and liability of manufacturers, and the difficulty of suing in the absence of strict contractual privity, noting, among other things, that this led to the distinction between tort recovery for physical injuries and warranty recovery for economic loss. Id. at 418-20. The court said that “[i]n cases such as the present one where only the defective product is damaged, the court should identify whether the particular injury amounts to economic loss or physical damage.” Id. at 420 (emphasis added). The court identified factors to use in distinguishing whether a loss is an economic loss or physical damage and said these factors “bear directly on whether the safety-insurance policy of tort law or the expectation-bargain protection policy of warranty law is most applicable to the claim in question.” Id. at 421 (emphasis added). Then the court said that the nature of the defect was “that the decks and walkways were not of the quality desired by the buyers” and the injury or damage was because the decks deteriorated though exposure to weather. Id.
The court’s analysis in Stuart was premised on product liability law, in accord with the plaintiff’s somewhat odd argument. While the court could have simply said builders are not product manufacturers, it instead explained why even if they were considered to be, the plaintiff’s claim would fail under the products liability argument that the plaintiff made.

 In engaging in an extended discussion of the nature of the tort duty it finds, and the damages it believes are recoverable, the lead opinion goes far beyond the question certified. In certifying its question, the Ninth Circuit clarified that if we decide that “the economic loss rule, or some other legal rule, bars [Affiliated FM’s] suit,” then it will affirm summary judgment in favor of LTK Consulting. Affiliated FM Ins. Co. v. LTK Consulting Servs., Inc., 556 F.3d 920, 922 (2009). Thus, this court should be deciding whether any doctrine bars the suit. If we do not perceive a reason that a tort suit is barred, that is all we should say. After all, this is a case being prosecuted in federal court and the federal courts are perfectly capable of applying a tort analysis. We do not have jurisdiction to do any more than answer the question asked. Broad, v. Mannesmann Anlagenbau, A.G., 141 Wn.2d 670, 676, 10 P.3d 371 (2000) (when this court undertakes to answer a question certified by a federal court, the federal court retains jurisdiction over all matters except the question certified). We do not need to define the tort duty, its nature and extent, or define recoverable damages.