11 N.E.3d 1074
Mass.2014Background
- Ayer Properties bought and renovated a 4‑story mill into 22 residential condominiums and 5 commercial units; Ayer acted as developer and trustee during construction and sold units as completed.
- After transfer of control to the condominium trustees, a professional inspection revealed defective window frames, exterior masonry, and roof attributable to Ayer's negligent construction.
- Trustees (Wyman, Thoms, Cascio) sued Ayer in 2005 seeking damages for negligent construction of common areas (not for individual owners’ contract claims).
- At bench trial the judge found Ayer negligent as to windows, roof, and masonry; awarded repair costs for windows and roof but denied recovery for masonry under the economic loss rule; he reduced awarded repair costs by 20% and added statutory interest.
- Appeals Court reversed dismissal as to masonry and awarded damages for masonry; this Court granted further review.
- Supreme Judicial Court held the economic loss rule ordinarily does not bar a condominium association’s negligence claim for damage to common areas and ordered full recovery of the trial‑found repair/replacement costs (vacating the 20% reduction), plus statutory interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of economic loss rule to damage to condominium common areas | Trustees: rule should not bar tort recovery for negligent construction of common areas — association must be able to pursue repairs | Ayer: condominium is an integrated product; where only the product (common areas) is damaged, economic loss rule bars tort recovery | Economic loss rule does not ordinarily apply to negligent construction damage to condominium common areas; trustees may recover in tort |
| Entitlement to damages for masonry deterioration | Trustees: masonry repair costs are recoverable as damages caused by negligence | Ayer: masonry damage is to the product itself only, so barred by economic loss rule | Masonry repair costs recoverable; judgment for masonry should be entered |
| Proper measure of damages (repair/replacement costs vs. diminution) | Trustees: actual and projected repair/replacement costs proven at trial should be awarded in full | Ayer: trial judge may reduce to reflect earlier (lower) replacement costs or other adjustments | Repair/replacement costs are an appropriate measure; the trial judge’s unexplained 20% reduction was improper and vacated |
| Reduction of damages to offset statutory prejudgment interest | Trustees: cannot reduce damages to avoid awarding legislatively mandated interest | Ayer: reduction is appropriate given interest would inflate recovery | Court: reducing damages to blunt G. L. c. 231, § 6B interest is improper; interest award does not justify reducing damages |
Key Cases Cited
- Bay-State Spray & Provincetown S.S., Inc. v. Caterpillar Tractor Co., 404 Mass. 103 (rule that economic loss precludes tort recovery for product that injures only itself)
- Berish v. Bornstein, 437 Mass. 252 (2002) (economic loss doctrine and negligent construction of a newly built home)
- FMR Corp. v. Boston Edison Co., 415 Mass. 393 (1993) (economic loss doctrine bars purely economic damages in tort absent physical injury or property damage beyond the product)
- East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986) (U.S. Supreme Court articulation of economic loss rationale)
- Trinity Church in the City of Boston v. John Hancock Mut. Life Ins. Co., 399 Mass. 43 (1987) (replacement/restoration costs permissible where diminution measure inadequate)
- Aldrich v. ADD, Inc., 437 Mass. 213 (2002) (precedent discussed re: application of economic loss rule to construction defects)
- McDonough v. Whalen, 365 Mass. 506 (1974) (economic loss doctrine analysis where negligent construction caused off‑site damage)