Coker v. Siler

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No. 107,696

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

GREGORY COKER,
Appellant,

v.

MICHAEL D. SILER,
Defendant,

and

J.M.C. CONSTRUCTION, INC., and JOHN M. CHANEY,
Appellees.


SYLLABUS BY THE COURT

1.
Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and where we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied.



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2.
The economic loss doctrine is a judicially created rule that governs the ability of a
plaintiff to bring a tort action when the only damages claimed by such plaintiff are
economic losses.

3.
Although the economic loss doctrine does not preclude a plaintiff from seeking
economic damages for negligently performed residential construction services, such a tort
claim will survive only if the plaintiff can establish that the construction worker owed the
plaintiff a duty imposed by law, independent of the underlying construction contract.

4.
The existence of a legal duty is a question of law over which this court exercises
unlimited review.

5.
An implied warranty is one arising by operation of law and not by express
agreement of the parties, the rationale being to protect a party from loss in circumstances
where the contract fails to expressly state the prevailing standard of care.

6.
Implied warranties of workmanlike performance exist only when the parties have
negotiated an underlying agreement for consideration and the agreement does not
expressly state that the performance will be carried out under the prevailing standard of
care for the industry.

7.
A construction contractor is liable for any injury to a third party, personal or
economic, resulting from work negligently performed even though the injury occurs after
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completion of the work and its acceptance by the owner, when such injury is reasonably
certain to occur if the work is negligently done.

Appeal from Douglas District Court; ROBERT W. FAIRCHILD, judge. Opinion filed May 3, 2013.
Reversed and remanded with directions.

Todd B. Butler and Stephanie B. Poyer, of Butler & Associates, P.A., of Topeka, for appellant.

Thomas H. Johnson, of Petefish, Immel, Heeb & Hird, LLP, of Lawrence, for appellees.

Before MCANANY, P.J., BUSER and STANDRIDGE, JJ.

STANDRIDGE, J.: After Gregory Coker's new home was damaged, he filed a
lawsuit for breach of express warranty against the company that sold him the house and
for negligence against John M. Chaney, the plumber whose act caused the damage. The
district court ultimately dismissed Coker's claim of negligence against Chaney based on
the economic loss doctrine, which—as it existed under Kansas law at the time—
prevented a homeowner from bringing a tort action under circumstances governed by
contract. But a subsequent Kansas Supreme Court ruling has refused to extend the
economic loss doctrine to homeowner claims against construction contractors. Thus, we
must reverse the district court's decision and remand the case so that Coker may go
forward with his tort claim against Chaney.

FACTS

In August 2006, J.M.C. Construction (J.M.C.) purchased a partially built house
from Michael D. Siler. At the end of that month, Chaney, president of J.M.C., personally
installed the main water line into the residence.

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In July 2007, Coker purchased the house from J.M.C. The contract for sale
included a 1-year express warranty provision, which stated:

"Seller agrees to warrant the improvements on the property for defects in
materials and workmanship for a period of one year from the date of possession and
agrees to pass on to Buyer all warranties provided on mechanical equipment installed on
the property."

Coker took possession of the residence in September 2007.

In April 2008, Coker received a higher-than-average water bill but attributed it to
watering the lawn during that time. However, in May 2008, he received another high
water bill. Finding no evidence of a leak above the ground, Coker contacted J.M.C. On
May 9, 2008, Chaney came to the home along with R.D. Johnson Excavation and dug up
the water line. They discovered that the main water line had separated from a coupling,
creating a 1/4- to 3/8-inch gap through which water was escaping. An engineer hired by
Coker determined that the water went underneath the foundation slab of the home and
caused heaving, which resulted in cracks in the walls and uneven doors.

Coker sued Siler, J.M.C., and Chaney (defendants) for negligence, breach of
implied warranty, and strict liability. He also claimed breach of express warranty against
J.M.C. and Chaney. Coker asserted $79,697.56 in damages.

J.M.C. and Chaney filed a motion for summary judgment, which the district court
granted in part. The district court denied the defendants' motion for summary judgment
on the breach of express warranty claim based on the fact that Coker offered evidence
through an expert's testimony sufficient to support his position that the cause of the leak
was within the defendants' exclusive control. The district court dismissed Coker's
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negligence, strict liability, and breach of implied warranty claims against J.M.C. and
Chaney because they were barred under the economic loss doctrine.

Upon the defendants' motion for clarification, the district court thereafter
dismissed Coker's breach of express warranty claim against Chaney based on a lack of
evidence in the record to support contractual privity between Coker and Chaney in his
individual capacity. The district court also denied Coker's motion to reconsider its order
dismissing his claims of negligence, strict liability, and breach of implied warranty
against Chaney.

On December 5, 2011, Coker accepted an offer of judgment on the breach of
express warranty claim from J.M.C. in the amount of $40,000. The district court entered
a final journal entry of judgment on January 25, 2012, and also dismissed the claims
against Siler with prejudice upon Coker's oral motion.

ANALYSIS

Coker claims the district court erred by granting summary judgment against him
on the negligence and implied warranty claims he brought against Chaney. Specifically,
Coker challenges the district court's decision finding that the economic loss doctrine
barred his negligence and implied warranty claims against Chaney. Specifically, Coker
argues the district court's decision was based on Prendiville v. Contemporary Homes,
Inc., 32 Kan. App. 2d 435, 83 P.3d 1257, rev. denied 278 Kan. 847 (2004), which—
although good law at the time the court issued its opinion—subsequently was overruled
by the Kansas Supreme Court in David v. Hett, 293 Kan. 679, 699, 270 P.3d 1102 (2011).

We review a district court's decision to grant or deny a motion for summary
judgment as follows:

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"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and where we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied.' [Citations omitted.]" Scott v. Hughes, 294 Kan. 403, 411, 275 P.3d 890
(2012).

1. Applicability of the Economic Loss Doctrine

The economic loss doctrine is a judicially created rule that governs the ability of a
plaintiff to bring a tort action when the only damages claimed by such plaintiff are
economic losses. See David, 293 Kan. at 683, 687-88. The doctrine was an attempt to
prevent contract law from dissolving into tort law by drawing a distinction between
commercial transactions, where contract law protects economic expectations, and
consumer transactions, where tort law remedies physical injuries to individual consumers.
See 293 Kan. at 686, 692, 698. The doctrine originated in product liability law to prevent
the purchaser of a defective product from suing in tort when the damages claimed were
purely economic in nature, such as the cost to repair or replace the defective product. To
recover in tort, the doctrine required the purchaser to demonstrate more than the product's
failure to meet economic expectations; the purchaser had to demonstrate some harm
above and beyond a broken contractual promise. See Koss Construction v. Caterpillar,
Inc., 25 Kan. App. 2d 200, 205, 960 P.2d 255, rev. denied 265 Kan. 885 (1998).

Our Court of Appeals first adopted the economic loss doctrine in a commercial
product liability case in Koss Construction, 25 Kan. App. 2d at 205. Six years later, our
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court expanded the scope of the doctrine by applying it to cases relating to residential
home construction. Prendiville, 32 Kan. App. 2d at 445-46. In Prendiville, a homeowner
contracted with the defendants to build a house and signed a 1-year new home warranty.
More than 4 years later, the plaintiff noticed water infiltration through the stucco siding
and sued the siding company, the construction contractor, and the contractor company's
president for breach of warranty, negligent construction, and violations of the Kansas
Consumer Protection Act (KCPA). A panel of this court held that the plaintiff was barred
from bringing a tort claim against his contractor for purely economic loss. 32 Kan. App.
2d at 446. In so holding, the court noted that applying the economic loss doctrine to
residential home construction services was consistent with the policy considerations
underlying the doctrine's initial adoption:

''[W]e find no compelling reason why the economic loss doctrine should not be applied to
a claim against a contractor in residential construction defect cases. Whether or not a
house is deemed to be a 'product,' we find that the principles underlying the economic
loss doctrine apply to a residential construction transaction where the rights and liabilities
of the parties are governed by contract and express warranty. This does not bar all of
[plaintiff's] claims against the defendants, but only those claims based on tort." 32 Kan.
App. 2d at 445.

As noted above, however, the Kansas Supreme Court recently overruled
Prendiville in the case of David. In David, the Davids acted as their own general
contractor to build a home and hired David Hett under an oral agreement for the
excavation, basement, and concrete work. Five years later, the Davids experienced
unusual settling in their home's garage and basement areas and sued Hett for breach of
contract, negligence, fraud, fraudulent concealment, and violation of the KCPA. Relying
on Prendiville, the district court found the economic loss doctrine prevented the Davids
from bringing a tort action under circumstances governed by contract. A panel of this
court affirmed, and the Kansas Supreme Court granted the Davids' petition for review in
order to decide whether the economic loss doctrine should bar claims by homeowners
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seeking to recover economic damages resulting from negligently performed residential
construction services.

The court in David began its discussion with a comprehensive summary of the
history of the economic loss doctrine and its development in Kansas. The court ultimately
found the rationale supporting the economic loss doctrine failed to justify a departure
from a long line of cases in Kansas that establish a homeowner's right to assert claims
against residential contractors "in tort, contract, or both, depending on the nature of the
duty giving rise to each claim." 293 Kan. at 680, 698-99. In support of this finding, the
court noted that application of warranty law offers very limited protection for
homeowners because the nature of home defects and damages that arise from them are
often not discoverable until after a warranty period expires. The court further noted that
residential construction contracts rarely involved the sophisticated parties with equal
bargaining positions present in commercial products cases. 293 Kan. at 699-700. Finally,
the court noted it found the economic loss doctrine's application to home construction
troubling because it focused on the damages rather than the duty breached, which could
allow a contractor to escape liability simply because the negligence was discovered
before someone was harmed. 293 Kan. at 700.

Having determined that the economic loss doctrine does not bar claims by
homeowners seeking to recover economic damages resulting from negligently performed
residential construction services, the court moved on to determine whether the gravamen
of the Davids' claim arose in tort. In so doing, the court adopted the pre-Prendiville
independent legal duty analysis used by Kansas courts:

"Whether a claim sounds in tort or contract is determined by the nature and
substance of the facts alleged in the pleadings. Nelson v. Nelson, 288 Kan. 570, 582, 205
P.3d 715 (2009); Malone [v. University of Kansas Medical Center], 220 Kan. [371,] 374
[, 552 P.2d 885 (1976)]. A breach of contract claim is the failure to perform a duty arising
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from a contract, and a tort claim is the violation of duty imposed by law, independent of
the contract. 220 Kan. at 374. But the fact that the parties have a contractual relationship
does not necessarily control the inquiry because legal duties may arise even though the
parties also have a contract, so that '"[w]here a contractual relationship exists between
persons and at the same time a duty is imposed by or arises out of circumstances
surrounding or attending the transaction, the breach of the duty is a tort."' 220 Kan. at 375
(quoting Yeager v. National Cooperative Refinery Ass'n, 205 Kan. 504, 509, 470 P.2d
797 [1970])." David, 293 Kan. at 701.

Finding that the appellate record did not reveal whether the Davids had supported their
negligence claims by citing any independent duty owed by Hett that was breached, the
court remanded the case to the district court to determine whether the Davids' claims
arose in tort or contract. 293 Kan. at 702-03.

In this case, the district court relied on Prendiville to support its conclusion that
the economic loss doctrine applied to the residential construction at issue here. The
district court noted that although damages to "other property" precludes application of the
economic loss doctrine, Kansas has adopted the integrated systems approach in which
damage by a defective component of an integrated system to the system as a whole or any
system component is not damage to "other property." Citing Prendiville and cases from
other jurisdictions, the district court concluded that the coupling at issue here was within
the integrated system of the house and the damage caused by the leak was "consequential
economic loss" placing it within the economic loss doctrine's reach. As a result, the court
held that Coker's negligence, strict liability, and breach of implied warranty causes of
action against J.M.C. were barred under the doctrine. The court also found Coker's
negligence, strict liability, and breach of implied warranty claims against Chaney were
barred, because "the president of a construction company, who has acted within that
capacity, is sufficiently a party to the contract to defeat a lack-of-contractual privity
claim."

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Although the district court properly relied on the law as it existed at the time of its
ruling, the intervening change in the law necessarily renders the conclusion reached by
the district court erroneous as a matter of law. Although this means that the economic
loss doctrine does not preclude Coker from seeking economic damages from Chaney for
negligently performed residential construction services, Coker's tort claims will survive
only if Coker can establish that Chaney owed Coker a duty imposed by law, independent
of the underlying construction contract. See David, 293 Kan. at 701.

2. A Legal Duty Imposed by Law, Independent of the Contract

Coker contends that Chaney owed him a legal duty to perform his plumbing
services free from negligence and that this duty exists independent of the underlying
construction contract. The existence of a legal duty is a question of law over which this
court exercises unlimited review. Glassman v. Costello, 267 Kan. 509, 521, 986 P.2d
1050 (1999). Thus, if a court concludes that a defendant accused of negligence did not
have a duty to act in a certain manner toward the plaintiff, summary judgment is proper.
Elstun v. Spangles, Inc., 289 Kan. 754, 757, 217 P.3d 450 (2009).

In his brief, Coker claims Chaney had a legal duty to perform plumbing services
free from negligence under the following two theories, both of which existed independent
of the underlying construction contract: (1) A construction contractor's implied warranty
that the work will be done in a workmanlike manner, using appropriate care and skill, and
(2) a construction contractor's liability for any personal or economic injury to a third
party resulting from work negligently performed.

a. Duty Arising Out of Implied Warranty

An implied warranty is one arising by operation of law and not by express
agreement of the parties, the rationale being to protect a party from loss in circumstances
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where the contract fails to expressly state the prevailing standard of care. See Corral v.
Rollins Protective Services Co., 240 Kan. 678, Syl. ¶ 6, 732 P.2d 1260 (1987). "The law
in Kansas and, indeed, the general rule throughout the United States is that there is
'implied in every contract for work or services a duty to perform it skillfully, carefully,
diligently, and in a workmanlike manner.' [Citations omitted.]" Zenda Grain & Supply
Co. v. Farmland Industries, Inc., 20 Kan. App. 2d 728, 738, 894 P.2d 881, rev. denied
257 Kan. 1096 (1995). Kansas courts have found such implied warranties of
workmanlike performance in various agreements, including building contractors and
subcontractors. 20 Kan. App. 2d at 739 (citing Ware v. Christenberry, 7 Kan. App. 2d 1,
637 P.2d 452 [1981]).

Notably, implied warranties of workmanlike performance exist only when the
parties have negotiated an underlying agreement for consideration and the agreement
does not expressly state that the performance will be carried out under the prevailing
standard of care for the industry. Zenda Grain & Supply Co., 20 Kan. App. 2d at 737.

Because there can be no implied warranty of workmanlike performance in the
absence of an underlying agreement between the parties to provide services, we must
now determine whether Coker and Chaney entered into such an agreement. As Coker
points out, the district court came to two seemingly contradictory conclusions with
respect to this issue on summary judgment. In finding the economic loss doctrine applied
to bar Coker's tort claims against Chaney, the court concluded in its memorandum
decision that "the president of a construction company, who has acted within that
capacity, is sufficiently a party to the contract to defeat a lack-of-contractual privity
claim." In response to Chaney's motion to clarify, however, the court explained in a
supplemental memorandum decision that Chaney, in his individual capacity as a plumber
performing work for Coker, was not a party to the J.M.C. contract.

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These holdings, however, are not mutually exclusive. The district court correctly
made a distinction between Chaney's acts within his capacity as president of J.M.C. and
his acts as an individual. Although Chaney may have been a party to the contract with
Coker as president of J.M.C., the district court correctly held Chaney was not a party to
that contract in Chaney's capacity as an individual plumber. The record in this case
reflects that Coker's implied warranty claim against Chaney is based on Chaney's failure
as an individual plumber to provide services skillfully and in a workmanlike manner.
Because there is no evidence of an underlying agreement between Coker and Chaney to
provide those plumbing services in the first instance, Coker's claim that Chaney breached
an implied duty within such a contract fails as a matter of law.

b. Contractor Liability for Injury to Third Party

As an alternative theory of recovery, Coker cites to this court's decision in Kristek
v. Catron, 7 Kan. App. 2d 495, 499, 644 P.2d 480, rev. denied 231 Kan. 800 (1982), to
establish that Chaney had a legal duty—independent of any contract—to perform
plumbing services without causing economic injury to third parties. In Kristek, a builder
contracted with and built a house for an investment company. The investment company
later sold the house to the plaintiff. After the plaintiff noticed stains on the ceiling and
walls of the house resulting from a water leak, the plaintiff sued the builder for damages
on a theory of negligent construction. The court held:

"[A] construction contractor is liable for any injury to a third party, personal or economic,
resulting from work negligently performed even though the injury occurs after
completion of the work and its acceptance by the owner, when such injury is reasonably
certain to occur if the work is negligently done." 7 Kan. App. 2d at 499.

Applying the rule enunciated in Kristek to the facts here, Chaney is liable for
injuries sustained by third parties as a result of any torts he may have committed as an
individual plumber. Under this theory of recovery, then, Chaney owed Coker a legal duty
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independent of Coker's contract with J.M.C. Because the district court found Coker
offered sufficient evidence to present a question of fact as to whether there was a defect
that caused the leak at the time the home left J.M.C.'s possession, Coker's claim of
negligence against Chaney in his individual capacity as a plumber must be reinstated.

Reversed and remanded with directions to reinstate Coker's claim of negligence
against Chaney in his individual capacity as a plumber.