Lead Opinion
¶ 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
¶ 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,
¶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
¶ 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
¶ 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
¶ 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
¶ 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,
¶ 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
¶ 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.,
¶ 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,
¶ 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,
¶ 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
¶ 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,
¶ 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
¶ 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.,
¶ 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.,
¶ 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
¶ 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.,
¶ 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.
¶ 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,
Affirmed.
Notes
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.,
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.,
Concurrence Opinion
¶ 33. concurring and dissenting. The majority expands the so-called economic-loss rule by applying it to claims resting on physical damage to property and by implying a presumptive prospective waiver of tort claims whenever parties assume corresponding contractual duties. In so doing, it misapprehends the rationale for and scope of the rule, further muddying an already confused area of law.
¶ 34. Courts, including this one, have cited “the economic-loss rule” to support a variety of related but nonetheless distinct
¶ 35. Significantly, as this Court has long recognized, the “economic losses” to which the economic-loss rule applies are intangible economic losses, and do not include losses accompanying physical harm to persons or property. See Long Trail,
¶ 36. A more specific corollary to the general rule articulated above is that the assumption of a contractual duty does not give rise to a tort duty to prevent economic losses with respect to the subject of the contract. Long Trail,
¶ 37. However, it is not the law, and we have never previously held, that a person cannot have simultaneous duties in tort and contract covering the same subject matter. The existence of a contractual duty does not give rise to a tort duty to prevent economic losses where such a duty does not otherwise exist, but neither does it as a matter of law negate an independent tort duty. As we have previously recognized, “[t]he underlying analysis turns on whether there is ‘a duty of care independent of any contractual obligations.’ ”
¶ 38. To be sure, contracting parties may agree in advance to limit the remedies available for a party’s negligence in tort, but it takes more than contract provisions establishing overlapping contract duties to effect such a waiver or limitation. First and foremost, courts will not enforce an exculpatory agreement unless the language effectuating the waiver is clear. We have explained that “courts have traditionally disfavored contractual exclusions of negligence liability,” and accordingly “have applied more exacting judicial scrutiny when interpreting this type of contractual provision.” Colgan v. Agway, Inc.,
¶ 40. In addition, we have recognized that “[e]ven well-drafted exculpatory agreements . . . may be void because they violate public policy.” Dalury v. S-K-I, Ltd.,
¶ 41. Turning to this case, in his second amended complaint Walsh alleged that “[i]n the process of vacating the premises, the Defendants negligently damaged them quite extensively which inhibited the Plaintiff from reletting the premises for some time, while repairs were made.” Walsh sought a judgment that “the Defendants are liable for the cost of repairing the damages to the Lease Premises negligently inflicted by them, the loss of rentals during the period of repair, and other consequential damages resulting therefrom.”
¶ 42. At trial, Walsh supported these allegations with evidence that defendants left holes in the sheetrock, including a major hole, such that the sheetrock had to be replaced; altered the windows by removing or damaging surrounding molding or trim; destroyed the heating units, necessitating replacement; failed to put sheet-rock up in Unit 8 after (with Walsh’s consent) removing a bathroom in Unit 6 to make room for a stairway to connect two units; damaged light switches and an electric-outlet plate; left dangling electric wires which had to be removed and capped by an electrician; caused several hundred dollars’ worth of damage to ceiling tiles; broke the thermostat and left it dangling; and damaged the doorframe and latch such that Walsh had to replace them.
¶ 44. The majority recognizes that this case involves harm to property, but asserts that “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.” Ante, ¶ 28. This general statement has everything to do with products liability and construction cases, and nothing to do with a case like this. The primary case relied upon by the majority, East River Steamship Corp. v. Transamerica Delaval Inc., involved ship turbines which failed due to design and manufacturing defects.
¶ 45. The leased premises in this case are in no way akin to the defective product in East River Steamship or the defectively constructed condominium in Long Trail. As the Florida Supreme Court noted in connection with a similar issue, “[h]ad the courts adhered to [the East River] requirements (a product, the product damaging itself, and economic losses), the confusion that has abounded in this area of the law would have been minimized.” Comptech Int’l, Inc. v. Milam Commerce Park, Ltd.,
The principle that respects the parties’ private ordering is to some extent undermined when courts assume, without analyzing the contract, that the contract has allocated risks on the matter in dispute. In addition, some courts have applied the contract version of the economic loss rules much more broadly than the core idea suggests. For example, courts may exclude the tort claim because the contract imposes a duty that is the same as or similar to the duty imposed by an independent tort rule. Courts may also exclude the tort claim that arises from an independent tort duty if the tort claim deals with the same “subject matter” covered by the contract, or is “interwoven” with the contract, or even when the tort claim merely arises from the same set of facts as the contract claim. Professor Johnson has carefully criticized these broad approximations. It is possible that fine-tuning over-broad statements will come as case law develops with more attention to effectuating the parties’ intent in contracting.
3 D. Dobbs, et al., The Law of Torts § 613, at 480-81 (2d ed. 2011) (emphasis added) (footnotes omitted). The same treatise explains:
Where a contract creates a special relationship between the parties, such as a status like lawyer and client, the duties arising from the relationship may often be enforced in tort, not merely in contract. However, according to some authority, 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.
Id. § 615, at 490 (emphasis added) (footnote omitted). The statement from Dobbs upon which the majority relies in characterizing
¶ 47. In this case, the provision of the parties’ lease agreement apparently relied upon by the majority provides that tenant owns and may remove all furniture, machinery, and equipment used during the lease, provided that the removal does not cause substantial damage to the premises, and provides that fixtures installed by the tenant that cannot be removed without causing permanent damage to the interior of the leased premises shall become property of the landlord. The provision does not purport to supersede and replace all existing tort duties including those duties relating to the alleged holes in the sheetrock, damage to the window trim, destruction of the heating units, failure to replace sheetrock after removing a bathroom, damage to light switches and an electric-outlet plate, dangling electric wires, a broken thermostat, and damage to the doorframe and latch. It is not at all clear that all, or even most, of this damage was directly tied to the removal of furniture referenced in the lease agreement.
¶ 48. By concluding that this contract provision relating to fixtures essentially wipes out the tort duties of a third party with respect to property damage more broadly, the majority shifts from a rule that recognizes that a contractual duty does not give birth to a tort duty to avoid purely economic losses to a rule that presumes that a contractual duty negates any pre-existing, independent tort duty concerning the same subject matter. This approach turns the analysis on its head and bypasses the proper threshold question — “Is there a duty here independent of the contract?” The resulting rule embraced by the majority is not a logical corollary of the economic-loss rule in either its general or more specific expression, but represents a new approach that upends the very balance between the respective and sometimes overlapping domains of tort and contract law that the economic-loss rule is supposed to protect. It also sidesteps the rigorous review this Court applies to exculpatory clauses in contracts.
¶ 49. Wholly apart from any lease agreement, defendants here had a well-established duty not to unreasonably damage Walsh’s premises. It is black-letter tort law that “[a]n actor whose
¶ 50. Moreover, as occupiers of Walsh’s premises, both defendants had a well-established common-law duty to avoid waste. In Turgeon v. Schneider, we approved a trial court’s instruction that while the tenants lawfully possessed a farm, “they had a duty to take care of the farm and the equipment therein and return it to [landlords] in substantially the same condition as when their occupancy began, reasonable wear and tear excepted.”
¶ 51. We examined this duty most recently in the case of Prue v. Royer, in which we explicitly defined waste to include repairable as well as irreparable damage to property.
¶ 52. Significantly, like the more general duty of reasonable care with respect to another’s property, the duty not to commit waste does not depend on a contract directly with a landlord; rather, it arises from the lawful possession of property. The Restatement (Second) of Property provides the following illustration:
L leases commercial property to T. T subleases the premises for part of the remainder of the term to S. During his occupancy, S causes substantial damage to the*480 premises. S has violated his obligation to T not to make changes in the leased property. If S’s conduct has damaged L’s reversionary interest in the leased property, S is liable to L for that damage.
Restatement (Second) of Property: Landlord & Tenant § 12.2, illus. 19 (1977) (emphasis added).
¶ 53. Moreover, nothing in the lease agreement suggests that Walsh has contracted away his legal protections with respect to common-law negligence or waste — as to Cluba individually as a party to the contract, or to Good Stuff as some sort of third-party beneficiary. The most pertinent provision of the lease agreement simply provides: “The tenant agrees ... at the termination of this lease to surrender the premises in the same condition as at the commencement hereof, reasonable wear and tear excepted.” Nowhere in the lease agreement does Walsh implicitly or explicitly waive his common-law remedies for waste with anything approaching the degree of clarity and specificity we have consistently required for an effective exculpatory release.
¶ 54. On the basis of the above considerations, I would join those courts that have allowed a claim for purely economic loss (which this is not) based on allegations of waste by tenants, notwithstanding the existence of a contract covering overlapping duties. The Supreme Court of Washington considered a similar issue in Eastwood v. Horse Harbor Foundation. In that case, a commercial landlord of a horse farm sued the tenant, a nonprofit corporation, as well as its employee and its board of directors for breach of the lease, commission of waste, and negligent breach of a duty not to cause physical damage to the leasehold.
¶ 55. Listing a host of causes of action — such as wrongful interference with contractual relations, breach of an agent’s fiduciary duty to act in good faith, wrongful discharge in violation of public policy, failure of an insurer to act in good faith, and fraudulent concealment — the court concluded that “the fact that an injury is an economic loss or the parties also have a contractual relationship is not an adequate ground, by itself, for holding that a plaintiff is limited to contract remedies.” Id. Instead, “[a]n injury is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract.” Id. at 1262. The court held that because the duty not to cause waste arises independently of the lease agreement, the landlord’s claims were not barred by the economic-loss rule, and the individual defendants could be liable for the tort of waste. Id. at 1266-67; see also Serfecz v. Jewel Food Stores, Inc.,
¶ 56. For the above reasons, I respectfully dissent from the majority’s holding with respect to Walsh’s counterclaim against defendants for property damage, but concur in all other respects.
See Restatement (Third) of Torts: Liab. for Econ. Harm § 1 Reporter’s Note (Tentative Draft No. 1, 2012) (describing “economic loss” as a “potent source of confusion” within the law of liability for negligence). The economic-loss provisions of the Restatement (Third) of Torts: Liability for Economic Harm cited in this opinion were approved at the 89th Annual Meeting of the American Law Institute. 89th Annual Meeting: 2012 Proceedings, Discussion of Restatement of the Law Third, Torts: Liability for Economic Harm, 89 A.L.I. Proc. 22, 46-47 (2012). The A.L.I. states that “[o]nce it is approved by the membership at an Annual Meeting, a Tentative Draft . . . represents the most current statement of the American Law Institute’s position on the subject and may be cited in opinions or briefs . . . until the official text is published.” Overview, Project Development, Am. Law Inst., http://www.ali.org/index. cfm?fuseaction=projects.main.
I add the “exeept-when-it-doesn’t” caveat because courts have recognized a host of exceptions to this general principle, such that the broad statement quoted above doesn’t actually reflect the state of the law. See, e.g., Long Trail House Condo. Ass’n v. Engelberth Constr., Inc.,
Because of the plethora of exceptions to the broad formulation of the economic-loss rule, the Restatement (Third) of Torts: Liability for Economic Harm articulates “a more limited principle: not that liability for economic loss is generally precluded, but that duties of care with respect to economic loss are not general in character; they are recognized in specific circumstances.” § 1 cmt. b (“Stating the absence of a duty as a general rule can create confusion by seeming to threaten well-established causes of action, by leaving behind an uncertain and unwieldy number of exceptions, and by implying a needless presumption against the existence of a duty on facts not yet considered. The rule of this Section creates no such presumption. It merely means that duties to avoid causing economic loss require justification on more particular grounds than duties to avoid causing physical harm.”).
Because the “economic loss rule” phrase “has proved to be a misnomer,” at least one state has rejected that label, now referring instead to the “independent duty doctrine,” a “more apt term.” Eastwood v. Horse Harbor Found., Inc.,
The majority recognizes this, ante, ¶ 31 n.2, but then departs from this framework, embracing the view that an agreement that establishes a contractual duty to take or refrain from taking certain actions displaces or overrides a pre-existing and independent tort duty with respect to the same subject matter. See ante, ¶¶ 28-30.
Although the discussion of waste is found in the Restatement (Second) of Property, rather than the Restatement of Torts, the duty not to cause waste is frequently characterized as a tort duty. Whether we describe the duty to avoid waste as a duty in tort or as a common-law property duty, it is independent from contract. See, e.g., Restatement (Third) of Property (Mortgages) § 4.6 cmt. a (1997) (‘Waste does not depend oh the presence of covenants in the mortgage. It is in the nature of a tort, a breach of a duty arising from the mortgage relationship,” although “the parties may insert covenants in the mortgage refining or expanding the definition of waste.”); 8 R. Powell, Powell on Real Property ¶ 56.01, at 56-3 (M. Wolf ed. 2007) (“The law of waste can be considered as a part of the law of torts, because it considers wrongful and actionable conduct and the available remedies for such wrongs.”).