The Residences at Ivy Quad Unit Owners Association, Inc. v. Ivy Quad Development, LLC, et al.The Residences at Ivy Quad Unit Owners Association, Inc. v. Ivy Quad Development, LLC, et al.
Justices David, Massa, Slaughter, and Goff concur.
At the pleading stage, the viability of a plaintiff‘s claim is measured by its sufficiency, not its likelihood of success. Thus, to survive dismissal of a claim at this stage, a plaintiff‘s complaint need only contain facts that support the possibility of relief.
Here, the plaintiff—a homeowners’ association—discovered defects at a condominium complex and sued several defendants for both breach of the implied warranty of habitability and negligence. The trial court granted dismissal of the claims against four of the defendants, finding that the implied warranty of habitability did not apply and that the economic loss doctrine barred recovery on the negligence claim.
We affirm in part and reverse in part. As is frequently the case at this early stage, the facts that might support dismissal are not developed. But the plaintiff has alleged sufficient facts to support relief against two of the four defendants on the implied-warranty-of-habitability claim. And though the economic loss doctrine may preclude recovery on the negligence claim as the facts mature, dismissal at this stage is premature.
Facts and Procedural History
Ivy Quad is a sixty-plus-unit residential condominium complex located in South Bend. In fall 2017, residents noticed issues at the complex, such as “crumbling and cracking concrete and water infiltration.” In response, the Residences at Ivy Quad Unit Owners Association, Inc. (“HOA“) hired an engineering firm to investigate the concerns. The firm inspected the complex multiple times and ultimately five reports were issued that identified a wide range of construction and design defects.
As a result, the HOA—on the unit owners’ behalf—sued several parties involved in the development, design, construction, or sale of Ivy Quad, including Matthews, LLC; DMTM, Inc.; David Matthews; and Velvet
The Matthews Defendants responded by filing a motion to dismiss under
The trial court certified its dismissal order for interlocutory appeal, and the Court of Appeals accepted jurisdiction. The Court of Appeals reversed and remanded for further proceedings. Residences of Ivy Quad Unit Owners Ass‘n, Inc. v. Ivy Quad Dev., LLC, 164 N.E.3d 142, 149, 152–53 (Ind. Ct. App. 2021). The Matthews Defendants then petitioned for transfer, which we granted, vacating the Court of Appeals opinion.
Standard of Review
We review a
Discussion and Decision
It is well settled that a motion to dismiss under
The Matthews Defendants maintain that the trial court properly dismissed both claims. As to the implied-warranty-of-habitability claim, the Matthews Defendants argue that they are not subject to the warranty because they are not builder-vendors, a requirement for liability under Indiana law. See Callander v. Sheridan, 546 N.E.2d 850, 852 (Ind. Ct. App. 1989). As to the negligence claim, the Matthews Defendants maintain that the economic loss doctrine bars recovery. This rule, as explained in more detail below, generally precludes recovery for “purely economic loss” caused by negligence in the performance of a contract between parties. See Indianapolis-Marion Cnty. Pub. Libr. v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 729 (Ind. 2010).
On the implied-warranty claim, we partially agree with the Matthews Defendants; but we disagree with them on the negligence claim. The HOA alleged facts supporting a “builder-vendor” status for two of the Matthews Defendants—David Matthews and Velvet Canada. Thus,
I. The HOA alleged facts capable of supporting relief on its implied-warranty-of-habitability claims against David Matthews and Velvet Canada.
Embedded in the sale of every newly built home is the implied warranty of habitability: a promise that the dwelling is “free from defects which substantially impair [its] use and enjoyment.” Choung v. Iemma, 708 N.E.2d 7, 12 (Ind. Ct. App. 1999). This warranty, however, has limits. It extends to subsequent purchasers of a home, but in such cases, it covers only latent or hidden defects. Barnes v. Mac Brown & Co., 264 Ind. 227, 342 N.E.2d 619, 620–21 (1976). And liability for an alleged breach may be imposed only on “builder-vendors“—persons or entities involved in “building and selling homes for profit.” Callander, 546 N.E.2d at 852; see also Carroll‘s Mobile Homes, Inc. v. Hedegard, 744 N.E.2d 1049, 1051 (Ind. Ct. App. 2001).
Here, the HOA sued each of the Matthews Defendants—David Matthews; Velvet Canada; DMTM, Inc.; and Matthews, LLC—for breach of the implied warranty of habitability. Thus, the relevant inquiry is whether the HOA‘s complaint contains facts sufficient to support a “builder-vendor” status for each defendant—that is, whether they were involved in both the construction and sale of Ivy Quad.
The complaint includes sufficient facts to support a showing that David Matthews and Velvet Canada are “builder-vendors” because the HOA alleged that both took part in “the design, construction, development and sale of Ivy Quad.” In other words, each defendant was purportedly involved in both building and selling residences at Ivy Quad for profit. However, the same is not true for the other two Matthews Defendants. Though the HOA alleged that DMTM, Inc. and Matthews, LLC were
We turn now to the HOA‘s negligence claim and determine whether—at this early stage in the proceedings—it is barred by the economic loss doctrine.
II. The HOA alleged facts capable of supporting relief on its negligence claim.
Under Indiana‘s economic loss doctrine, a defendant is not liable in tort “for any purely economic loss caused by its negligence.” Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d at 729. At the
When a plaintiff suffers damages caused by another‘s negligence, remedies may be available under both contract and tort law. Yet, these bodies of law have distinct remedial purposes, and our economic loss doctrine preserves this distinction. Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d at 729. Indeed, the longstanding rule under Indiana law is that a defendant is not liable in tort when a plaintiff alleges only “purely economic loss,” which is financial harm “arising from the failure of the product or service to perform as expected.” Gunkel v. Renovations, Inc., 822 N.E.2d 150, 153 (Ind. 2005).
Our economic loss doctrine is rooted in the understanding that parties typically allocate the risk of economic loss through a direct, contractual relationship. See Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d at 740. But in the construction-project context—where contractual privity between each participant may be lacking—parties typically allocate that risk through “a network or chain of contracts.” Id. at 739. With “such a contract chain,” the participants retain “the opportunity to bargain and define their rights and remedies, or to decline to enter into the contractual relationship.” Id. at 740. And when construction-project participants are connected in this way, the economic loss rule prevents a party from recovering in tort for commercial losses that it could have protected itself against through the contractual relationship. Id.; JMB Mfg., 799 F.3d at 785.
Thus, when determining whether our economic loss doctrine precludes tort recovery, two considerations guide our review: the type of damages sought and the contractual relationship between the parties. Here, in light of our standard of review, we cannot conclude that the doctrine bars the HOA‘s negligence claim. We reach this conclusion for two interrelated reasons: (1) the alleged damages are not exclusively “purely economic“; and (2) the complaint does not reveal if, or to what extent, the parties were connected contractually. We address each in turn.
First, at this juncture, the HOA‘s alleged damages do not trigger application of the economic loss doctrine. The complaint seeks recovery not only for “expense incurred in hiring experts, redesigning of Ivy Quad to correct the deficiencies, and reconstructing, repairing, and restoring Ivy Quad“—which would, indeed, be “purely economic“—but also for “damage to other property, including property inside individual units
Second, even if the HOA alleged only purely economic damages, dismissal of the negligence claim is premature for an additional reason. As noted above, the economic loss doctrine precludes tort recovery when participants in a construction project are connected through a chain of contracts. But here, the HOA‘s complaint includes nothing about if, or to what extent, the parties were connected contractually. Accordingly, we cannot conclude that the parties ever had the opportunity to “allocate their respective risks, duties, and remedies.” Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d at 736. And without a factual basis demonstrating any contractual relationship between the HOA and the Matthews Defendants, it would be unjust to foreclose a tort theory of relief based on the economic loss doctrine. Cf. Greg Allen Constr. Co. v. Estelle, 798 N.E.2d 171, 173 (Ind. 2003) (“To the extent that a plaintiff‘s interests have been invaded beyond mere failure to fulfill contractual obligations, a tort remedy should be available.“).
Conclusion
The HOA‘s complaint includes facts capable of supporting relief on its implied-warranty-of-habitability claims against David Matthews and Velvet Canada, but not against DMTM, Inc. and Matthews, LLC. And the complaint also contains facts capable of supporting relief on its negligence claim. We therefore reverse in part, affirm in part, and remand for proceedings consistent with this opinion.2
David, Massa, Slaughter, and Goff, JJ., concur.
Joseph C. Chapelle
Mark J. Crandley
Bart A. Karwath
Barnes & Thornburg LLP
Indianapolis, Indiana
ATTORNEYS FOR APPELLEES MATTHEWS, LLC, DMTM, INC., DAVID MATTHEWS, AND VELVET CANADA
Lyle R. Hardman
Jonathan W. Slagh
Austin T. Kearney
Hunt Suedhoff Kearney, LLP
South Bend, Indiana
ATTORNEY FOR APPELLEE JM QUALITY CONSTRUCTION, LLC
Michael C. Ross
Barrett McNagny LLP
Fort Wayne, Indiana
ATTORNEYS FOR APPELLEE JOHN WARD CONCRETE, INC. D/B/A JW CONCRETE AND EXCAVATION
David Taylor
Jerry Padgett
Taylor DeVore & Padgett, P.C.
Carmel, Indiana
Jonathan B. Snider
Dinsmore & Shohl LLP
Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE INDIANA TRIAL LAWYERS ASSOCIATION
Kevin S. Smith
Church, Church, Hittle & Antrim
Noblesville, Indiana
Thomas F. Bedsole
Frost Brown Todd, LLC
Indianapolis, Indiana