BMI Properties, LLC v. Building Associates, Inc.

• Court: Indiana Court of Appeals
• Decided: December 14, 2023
• Docket: 23A-PL-00988
• Status: Published

Opinion

FILED Dec 14 2023, 8:50 am

CLERK Indiana Supreme Court Court of Appeals and Tax Court

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE Lonnie D. Johnson BUILDING ASSOCIATES, INC. Benjamin A. Katchur Crystal G. Rowe Clendening Johnson & Bohrer, P.C. April M. Jay Bloomington, Indiana Kightlinger & Gray, LLP Indianapolis, Indiana

ATTORNEYS FOR APPELLEE TABOR/BRUCE ARCHITECTURE & DESIGN, INC. Nicholas C. Nizamoff Michael D. Heavilon DeFur Voran, LLP Fishers, Indiana

ATTORNEYS FOR APPELLEE EDWARDS MASONRY, INC. Thomas M. Kimbrough Michael H. Michmerhuizen Barrett McNagny LLP Fort Wayne, Indiana

IN THE COURT OF APPEALS OF INDIANA

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 1 of 11 BMI Properties, LLC, December 14, 2023 Appellant-Plaintiff, Court of Appeals Case No. 23A-PL-988 v. Appeal from the 1 Daewoong, LLC; Tabor/Bruce Monroe Circuit Court Architecture & Design, Inc.; 2 The Honorable Building Associates, Inc.; and Kara E. Krothe, Judge Edwards Masonry, Inc., Appellees-Defendants. Trial Court Cause No. 53C06-2107-PL-1448

Opinion by Senior Judge Baker Judges May and Vaidik concur.

Baker, Senior Judge.

Statement of the Case [1] BMI Properties, LLC (BMI) appeals from the trial court’s order granting

summary judgment in favor of Tabor/Bruce Architecture & Design, Inc.

(Tabor/Bruce), Building Associates, Inc (BAI), and Edwards Masonry, Inc.

(Edwards Masonry). The trial court found that BMI’s claims were precluded as

a matter of law by the economic loss doctrine and the acceptance rule.

1 BMI informs us that “[T]o date, Daewoong has failed to appear or participate in this litigation.” However, pursuant to Indiana Appellate Rule 17(A), “A party of record in the trial court . . . shall be a party on appeal.” 2 Building Associates, Inc. has not filed a separate appellate brief but has sought and was granted permission to join in the briefs of Edwards Masonry, Inc. and Tabor/Bruce Architecture & Design, Inc.

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 2 of 11 Concluding that genuine issues of material fact exist making the grant of

summary judgment inappropriate and that BMI’s claims are not precluded as a

matter of law, we reverse and remand.

Facts and Procedural History [2] Daewoong, LLC (Daewoong) owned property in Bloomington and contracted

with BAI in 2016 for the construction of a mixed-use building on the property.

The first floor consisted of commercial units, while the second and third floors

were residential apartment units. BMI entered into a purchase agreement with

Daewoong for the mixed-use building and property on June 4, 2019.

[3] The purchase agreement provided that BMI had the right to obtain a physical

inspection of the property for any “major defect in or with the [property]” and

to withdraw from the transaction within fifteen days of the receipt of the

inspection report if the report disclosed any material property defects.

Appellant’s App. Vol. II, pp. 41-42. The purchase agreement further provided

that “If [BMI] does not make a written objection to any problem(s) revealed in

the report(s) within such time period, the [property] shall be deemed acceptable

to [BMI]. Id. at 42.

[4] A survey, environmental assessment, and observable conditions physical

inspection were completed, and Daewoong provided BMI with an

environmental review completed by the Indiana Department of Environmental

Management. The parties closed on the property on July 31, 2019.

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 3 of 11 [5] Sometime in August 2019, a residential tenant’s bed post fell through the

floorboard on the day they moved into the apartment. And bricks fell off the

exterior of the building, damaging a tenant’s vehicle.

[6] After these events, BMI arranged to have the building inspected by the Veridus

Group’s Building Forensics Director Dan Weekes. Weekes’ inspection

included findings of moisture damage to the south and west exterior walls and

adjacent areas, cracks located in the brick veneer, improper drainage systems

for the brick veneer, and design defects in how the brick veneer was to be

constructed. BMI also hired Mold Diagnostics, LLC to perform spore trapping

and surface testing. The results of that inspection revealed there were multiple

areas with unacceptable levels of airborne spores within the building, and

visible black mold, which poses a serious risk to human health.

[7] BMI initially filed its complaint against Daewoong, but later amended its

complaint to name BAI, the general contractor; Edwards Masonry; and the

building’s architect, Tabor/Bruce. BMI alleged a breach of contract claim

against Daewoong. As for the others, BMI alleged negligence and breach of the

warranty of habitability, relating to the defects discovered during the

inspections. Though BMI served Daewoong by publication, Daewoong has

failed to appear or participate in this action. The remaining defendants

separately filed motions for summary judgment, with each contending that BMI

was precluded from recovery against them under the acceptance rule and

economic loss doctrine. The trial court agreed and granted the motions for

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 4 of 11 summary judgment. BMI now appeals, contending that the entry of summary

judgment was inappropriate.

Discussion and Decision Standard of Review [8] We review a trial court's summary judgment decision de novo, using the same

standard as the trial court. Griffin v. Menard, Inc., 175 N.E.3d 811, 812-13 (Ind.

2021). Summary judgment is appropriate “if the designated evidentiary matter

shows that there is no genuine issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.” Ind. Trial Rule 56(C).

[9] “The moving party bears the burden of making a prima facie showing that there

are no genuine issues of material fact and that the movant is entitled to

judgment as a matter of law . . . .” Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904

N.E.2d 1267, 1270 (Ind. 2009). If the movant satisfies that burden, “the burden

then shifts to the non-moving party to designate and produce evidence of facts

showing the existence of a genuine issue of material fact.” Id. “A fact is

‘material’ if its resolution would affect the outcome of the case, and an issue is

‘genuine’ if a trier of fact is required to resolve the parties’ differing accounts of

the truth . . . .” Williams v. Tharp, 914 N.E.2d 756, 761 (Ind. 2009). “We must

construe all factual inferences in favor of the non-moving party, and all doubts

as to the existence of a material issue must be resolved against the moving

party.” Hale v. SS Liquors, Inc., 956 N.E.2d 1189, 1191 (Ind. Ct. App. 2011).

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 5 of 11 [10] The Indiana Supreme Court has explained, “Indiana consciously errs on the

side of letting marginal cases proceed to trial on the merits, rather than risk

short-circuiting meritorious claims.” Hughley v. State, 15 N.E.3d 1000, 1004

(Ind. 2014). As a result, while the non-moving party has the burden on appeal

of showing the Court that the grant of summary judgment was erroneous, we

carefully assess the trial court’s decision to ensure the non-movant was not

improperly denied a trial. Brown by Brown v. Southside Animal Shelter, Inc., 158

N.E.3d 401, 405 (Ind. Ct. App. 2020), adhered to on reh’g, 162 N.E.3d 1121

(2021), trans. denied.

Analysis A. The Acceptance Rule

[11] The trial court concluded the acceptance rule bars recovery by BMI because of

the lack of privity between BMI, BAI, Edwards Masonry, and Tabor/Bruce.

The court found that BMI, who lacked contractual privity, was precluded from

recovery by Daewoong LLC’s acceptance of the project.

[12] “In order to prevail on a claim of negligence, the plaintiff is required to prove:

(1) a duty owed by the defendant to the plaintiff; (2) a breach of that duty by

the defendant; and (3) an injury to the plaintiff proximately caused by the

breach.” Peters v. Forster, 804 N.E.2d 736, 738 (Ind. 2004). “Duty is a question

of law for the court to decide.” Id. “Absent a duty, there can be no breach of

duty and thus no negligence or liability based upon the breach.” Id.

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 6 of 11 [13] The trial court’s order was entered prior to our Supreme Court’s decision in

U.S. Automatic Sprinkler Corp. v. Erie Ins. Exchange, 204 N.E.3d 215 (Ind. 2023).

In Automatic Sprinkler, our Supreme Court observed that the acceptance rule,

with its various exceptions, “generally shielded” contractors “from third-party

liability once the work is completed and then accepted by the owner.” 204

N.E.3d at 225. In other words, ‘“contractors do not owe a duty of care to third

parties after the owner has accepted the work.”’ Peters, 804 N.E.2d at 738

(quoting Blake v. Calumet Constr. Corp., 674 N.E.2d 167, 170 (Ind. 1996)).

[14] However, the court noted that in Peters it abandoned the acceptance rule in

favor of the “foreseeability doctrine.” 204 N.E.3d at 225. The Peters Court held

that,

A rule that provides that a builder or contractor is liable for injury or damage to a third person as a result of the condition of the work, even after completion of the work and acceptance by the owner, where it was reasonably foreseeable that a third party would be injured by such work due to the contractor’s negligence, is consistent with traditional principles of negligence upon which Indiana’s scheme of negligence law is based.

804 N.E.2d at 742.

[15] In Automatic Sprinkler, our Supreme Court “clarif[ied] the foreseeability

doctrine’s scope in two ways.” 204 N.E.3d at 226. “First, the foreseeability

doctrine applies when a third party seeks recovery for personal injury that was a

foreseeable consequence of a contractor’s allegedly negligent work.” Id. This

harmonized the Peters decision’s goal of “equaliz[ing] the liability field in the

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 7 of 11 context of negligence claims resulting in injuries to third parties.” Id. “Second,

the doctrine applies when a third party seeks recovery for property damage if

personal injury—though not sustained—is a foreseeable consequence of a

contractor’s allegedly negligent work.” Id. This harmonized the Citizen’s Gas &

Coke Util. v. Amer. Econ. Ins., 486 N.E.2d 998, 1000 (Ind. 1985) decision’s goal

of maintaining the privity requirement’s operation to preclude recovery for

property damages in a negligence action, where the negligent work poses a risk

only to property and not persons. Id. at 226-27.

[16] Turning now to the case at hand, we conclude that BMI’s claims survive the

motions for summary judgment. BMI’s complaint alleged that due to the

condition of the mixed-use building, a tenant’s bedpost broke through the

floorboard of the apartment when the tenant was moving in, and airborne

spores were present within the building, along with visible black mold, which

pose a serious risk to human health. Additionally, the brick veneer of the

building was peeling away allegedly due to design defects and improper

drainage leading to bricks falling to the ground. A tenant’s car was allegedly

damaged by the falling brick.

[17] No injuries to a person are alleged to have occurred. And, fortunately, no one

was injured when the bedpost broke through the floorboard, no one became ill

due to exposure to the airborne spores and/or black mold, and no passersby

were injured when the brick veneer peeled away from the building due to the

alleged faulty work, falling and striking the vehicle. However, whether personal

injury was a foreseeable consequence of BAI, Edwards Masonry, or

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 8 of 11 Tabor/Bruce’s work presents a genuine issue of material fact. We conclude

that the trial court, although not having the benefit of our Supreme Court’s

decision in Automatic Sprinkler, erred by granting summary judgment under the

acceptance rule.

B. Economic Loss Doctrine

[18] The trial court also concluded that the economic loss doctrine precluded BMI

from recovering for its claims. More specifically, the court held that “the costs

[BMI] is aiming to recover, repair to the apartment building, is[sic] purely

economic.” Appellant’s App. Vol. II, p. 21.

[19] “[T]he 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.”

Residences at Ivy Quad Unit Owners Ass’n, Inc. v. Ivy Quad Dev., LLC, 179 N.E.3d

977, 983 (Ind. 2022) (internal quotations omitted). “Under Indiana’s economic

loss doctrine, a defendant is not liable in tort ‘for any purely economic loss

caused by its negligence.’” Id. at 982-83 (quoting Indianapolis-Marion Cnty. Pub.

Libr. v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 729 (Ind. 2010)).

“‘Economic losses’ occur when there is no personal injury and no physical

harm to other property.” Gunkel v. Renovations, Inc., 822 N.E.2d 150, 153-54

(Ind. 2005).

[20] “Because these losses are, essentially ‘disappointed contractual or commercial

expectations,’ contract law—not tort law—is most appropriate for resolving

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 9 of 11 liability.” Ivy Quad, 179 N.E.3d at 983 (quoting Gunkel, 822 N.E.2d at 154).

“Notably, however, pure economic loss excludes damages that either stem from

personal injury or are sustained by ‘other property.’” Id. (quoting Gunkel, 822

N.E.2d at 153-54). “When such damages occur, recovery in tort is appropriate,

and the economic loss doctrine does not bar recovery.” Id.

[21] The Court further explained that “[o]ur economic loss doctrine is rooted in the

understanding that parties typically allocate the risk of economic loss through a

direct, contractual relationship.” Id. “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.

(quoting Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d 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. (quoting Indianapolis-Marion Cnty. Pub. Libr., 929 N.E.2d 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.

[22] Our Supreme Court summarized the analysis involved as follows: “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.” Id.

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 10 of 11 [23] We first look to the contractual relationship between the parties before engaging

in an analysis of the type of damages sought. BMI concedes that there was no

contractual relationship between it and BAI, Edwards Masonry, and

Tabor/Bruce. Appellant’s Br. p. 14. Edwards Masonry simply contends that

BMI had other options available to allocate its risks, without refuting the lack of

contractual relationship. See Edwards Masonry Br. p. 18. And Bruce/Tabor

states that “BMI . . . had no contract with Tabor/Bruce or any of the other

Construction Parties.” Bruce/Tabor Br. p. 10. The economic loss doctrine

does not apply to this situation because there is no contractual relationship

between the parties and, thus, no network or chain of contracts where the

parties allocated risks. And, as a consequence, we need not examine the type of

damages sought. We conclude that the economic loss doctrine should not

preclude BMI’s claims from going forward and that the trial court’s entry of

summary judgment was in error.

Conclusion [24] In light of the foregoing, we conclude that neither the acceptance rule nor the

economic loss rule entitles the defendants to summary judgment. Therefore, we

reverse and remand this matter to the trial court for further proceedings.

[25] Reversed and remanded.

May, J., and Vaidik, J., concur.

Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023 Page 11 of 11