Eye Care & Eye Wear Center of Maine v. Enables It, Inc.

• Court: Superior Court of Maine
• Decided: November 16, 2015
• Docket: CUMbcd-cv-14-55
• Status: Unpublished

Opinion

STATE OF MAINE BUSINESS AND CONSUMER COURT

Cumberland, ss.

EYE CARE & EYE WEAR CENTER OF MAINE

Plaintiff

v. Docket No. BCD-CV-14-55V"

ENABLES IT, INC., f/k/a Nexus Management, Inc.

Defendant and Third-Party Plaintiff

and

UNIFIED TECHNOLOGIES, INC., n/k/ a U T WIND-DOWN

Defendant and Third-Party Defendant

ORDER ON DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

The Motion for Partial Summary Judgment filed by Defendant Enables, It, Inc.,

formerly known as Nexus Management, Inc., is before the court for decision, along with the

opposition filed by Plaintiff Eye Wear and Eye Care Center ofMaine and Defendant's reply.

The court elects to decide the Motion without oral argument. See M.R. Civ. P. 7(b)(7).

Summary judgment is proper when there exist no genuine issues ofmaterial fact and

the moving party is entitled to judgment as a matter oflaw. M.R. Civ. P. 56( c); see also Levine v.

R.B.K. Caly Corp., 2001 ME 77, ~ 4, 770 A.2d 65.3, 655. A genuine issue is raised "when

sufficient evidence requires a fact-finder to choose between competing versions of the truth at

trial." Parrish v. Wright, 200.3 ME 90, ~ 8, 828 A.2d 778,781 (quotations omitted). A material

fact is a fact that has "the potential to affect the outcome of the suit." Burdzel v. Sobus, 2000 ME

84, ~ 6, 7 50 A.2d 57 .3, 57 5. "If material facts are disputed, the dispute must be resolved through

fact-finding." Curtis v. Porter, 2001 ME 158, ~ 7, 784 A.2d 18, 22. Defendant is a provider of information technology (IT) consulting services, and entered

into a contract with Plaintiff, to provide such services. Plaintiffs First Amended Complaint

claims that Defendant is liable for breach of the contract, but also that Defendant is liable to

Plaintiff for negligence in the provision of the contracted for services. Defendant's Motion

seeks partial summary judgment on the ground that the negligence claims asserted against it in

Counts II and III of Plaintiffs First Amended Complaint are barred by the economic loss

doctrine. Plaintiff responds on several fronts, including that the economic loss doctrine, at least

as applied in Maine, does not extend beyond contracts for the sale of goods.

The material facts are not in dispute. Specifically, there is no dispute as to the following

pertinent facts:

• Plaintiff does not allege that any negligent act or omission of the Defendant caused either personal injury or physical damage or destruction of tangible property. Plaintiff does allege that Defendant's negligence caused Plaintiffto lose information in the form of computer data.

• There are no requirements in Maine that IT service providers like Defendant be licensed or regulated. Likewise, the record does not indicate that there is a uniform or widely established system of accreditation for IT service providers. Although Plaintiff has designated an expert witness regarding the standard of care for IT service providers, the record does not establish that there are any uniformly accepted standards of care for IT service providers comparable to the standards for lawyers and doctors.

Rather than focusing on questions of fact, Defendant's Motion raises two as yet

unsettled questions oflaw about the scope of the economic loss doctrine. The two questions

are:

• Whether in Maine the economic loss doctrine applies to contracts for services in addition to contracts for the sale of goods?

• If so, whether the doctrine bars a negligence claim for economic loss arising out ofiT services provided under contract?

Both are questions oflaw, centered on whether, given that there is no claim for personal

injury or physical damage to tangible property, the Defendant owes Plaintiff a duty of care to

avoid economic loss only. See Bryan R. v. Watchtower Bible & Tract Soc'y, Inc., 1999 ME 144,

2 ~ 11, 738 A.2d 839, 844 ("Whether a defendant owes a duty of care to a plaintiff is a matter of

law for the court.")

It is perhaps symptomatic of the confusion surrounding the economic loss doctrine that

each of the parties to the Motion argues that the other's position falls outside an exception to

the general rule, meaning that the parties disagree about what is the general rule and what is

the exception. Plaintiff contends that the general rule is a seller of products or services can be

liable in tort for negligence as well as liable for breach of contract, except when the sale is of a

product and the buyer's loss is limited to injury or loss of the good itself, in which case only

contract remedies apply. Defendant contends that the general rule is that, when the plaintiffs

loss does not involve personal injury or property damage, tort claims arising out of services

provided under contract are cognizable only in a narrow range of cases involving professional

negligence, which Defendant contends this case does not involve.

The leading case in Maine on the economic loss doctrine is the Maine Law Court

decision in Oceanside at Pine Point Condominium Owners Assn. v. Peachtree Doors, 659 A.2d 267

(Me. 1995). In Peachtree, the Law Court defined economic loss as "damages for inadequate

value, costs ofrepair and replacement of defective product, or consequent loss of profits--

without claim of personal injury or damage to other property." !d. at 270 n.4 (quoting Moorman

Mfg. Co. v. Nat'l Tank Co., 435 N.E.2d 443, 449 (Ill. 1982)). Absent evidence of personal injury

or property damage, "[c]ourts generally ... do not permit tort recovery for a defective

product's damage to itself" !d. at 27 3; see also In re Hannaford Bros. Co. Customer Data Security

Breach Litig., 613 F. Supp. 2d 108, 127 (D. Me. 2009).

As Plaintiff points out, however, the Law Court has never applied the economic loss

doctrine to service contracts. Plaintiff also notes that the Law Court has endorsed tort claims

for economic loss arising out of contracts for legal and certain other professional services

s rendered under contract. Plaintiff thus argues for a narrow reading of Peachtree, limited to

claims ofproducts liability.

Defendant acknowledges that the economic loss doctrine does not apply in the context

oflegal and certain other professional services, but points out that several Maine federal court

and Superior Court decisions have applied the doctrine to other types of service contracts. See,

e.g., Maine Rubber Int'l v. Envtl. Mgmt. Group, Inc., 295 F. Supp. 2d 125, 128-29 (D. Me. 2003);1

Bayreuther v. Gardner, 2000 Me. Super. LEXIS 140 (Cum. Cty. June 21, 2000). Defendant

argues for a narrow reading of what it calls the professional services exception to the economic

loss doctrine.

Two core principles help define the scope of the economic loss doctrine.

The first is that, in tort, the general negligence duty-the duty to use reasonable care-

does not extend to purely economic loss: "Generally speaking, there is no general duty to

exercise reasonable care to avoid intangible economic loss or losses to others that do not arise

from tangible physical harm to persons and tangible things." W. Keeton, D. Dobbs, R. Keeton

& D. Owen, PROSSER AND KEETON ON THE LAW OF TORTS§ 92 at 657 (5th ed. 1984). See also

RESTATEMENT (THIRD) OF TORTS: LIABILITY FOR ECONOMIC HARM§ 1 cmt. c (Tentative

Draft No. I, 2012) ("An actor has no general duty to avoid the unintentional infliction of

economic loss on another."). This means that a claim of negligence generally must be

predicated on personal injury or physical property damage, and cannot be based solely on

economic loss.

The second core principle is that the rights, duties and risks of the parties to a contract

should not be altered by injecting tort principles into the contractual relationship, unless the

1 In Malne Rubber, Judge Hornby pointed out that "[t]here is nothing in Peachtree that gives any hint where the Law Court might come out" on the extent to which the economic loss doctrine applies to service contracts as well as to contracts for the sale of goods. 295 F. Supp. 2d at 129. However, he proceeded to resolve that question in favor of applying the economic loss doctrine to a contract for services between "two commercial entities able to bargain over the terms of their agreement [that] entered into a written contract to govern their relationship." Id. at 129-SO. 4 claim is for personal injury, property damage, fraud or other intentional wrongdoing or some

other form of harm cognizable in tort law. As one commentator expresses it, "The economic

loss doctrine marks the fundamental boundary between contract law, which is designed to

enforce the expectancy interests of the parties, and tort law, which imposes a duty ofreasonable

care and thereby encourages citizens to avoid causing physical harm to others." Sidney R.

Barrett, Jr., Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis,

40 S.C. L. REV. 891, 894 ( 1989). 2

It follows from the confluence of these principles that, with limited exceptions, "there is

no liability in tort for economic loss caused by negligence in the performance or negotiation of

a contract between the parties." RESTATEMENT (THIRD) OF TORTS-LIABILITY FOR ECONOMIC

HARM, Tentative Draft No.1, § 3, Preclusion ofTort Liability Arising from Contract

(Economic Loss Rule). 3

The exception to the economic loss doctrine that is pertinent here arises when the tort

claim for a purely economic loss is based on a professional duty arising out of the nature of the

service, a duty beyond the general duty to use ordinary care.

Maine law, like that of other states, recognizes that the providers of certain types of

services owe a duty beyond the general duty to use reasonable care to avoid personal injury and

property damage, and beyond the duties and obligations defined by the contract between the

provider and the recipient. See Graves v. S.E. Downey Registered Land Surveyor, P.A., 2005 ME

116, ~ 10, 885 A.2d 779, 782 ("Medical and legal malpractice actions are analyzed according to

~ The boundary-line role of the economic loss doctrine means that it may not apply when there is no contract defining the parties' relationship. SeeV. Johnson, The Boundary-Line Function ofthe Economic Loss Rule, 66 WASH & LEE L. REV. 523, 555 ( 2009) ("If there is no contract between the parties to litigation, there is no boundary-line function to be performed by the economic loss rule.")

.~ Another exception to the economic loss rule involving fiduciary relationships has a similar conceptual basis-a duty arising from both the nature of the service provided and reliance by the recipient. See generally A. Esquibel, The Economic Loss Rule And Fiduciary Duty Claims: Nothing Stricter Than The Morals Of The Marketplace?, 42 VILL. L. REV. 789 (1997).

5 tort law principles instead of contract law"). Because such an independent duty exists for

lawyers, doctors and some other members ofwhat traditionally are considered professions, this

exception to the economic loss doctrine is often called the "professional services" exception.

The current draft of the Restatement (Third) ofTorts provides that "[a] professional is

subject to liability in tort for economic loss caused by the negligent performance of an

undertaking to serve a client." Restatement (Third) ofTorts-Liability for Economic Harm,

Tentative Draft No.1,§ 3, Preclusion ofTort Liability Arising from Contract (Economic Loss

Rule), and§ 4, Professional [16] Negligence Resulting in Economic Loss (April2012). In

defining "professionals," the Restatement draft states: "Lawyers, doctors, and accountants are

invariably regarded by courts as professionals; insurance agents and architects are examples of

additional parties this Restatement would so recognize, whereas construction contractors and

tradesmen are on the other side of the line." !d.§ 4 cmt. b.

What defines "professional" services for purposes of the economic loss doctrine are

factors that include the extent to which the service in question involves specialized knowledge

and skill; the extent to which the recipient of the services relies upon the provider's specialized

knowledge and skill, and, perhaps most important, the existence of uniformly settled and

applied standards of practice and performance reflected in licensing requirements, laws and

regulations, accreditation standards, codes of conduct, local custom, or other sources. See, e.g.,

Pendleton Yacht Yard, Inc. v. Thomas H. H. Smith & Marine Design & Survey, Inc., 2003 Me.

Super. LEXIS 49; Terracon Consultants 1-Vestern Inc. v. Mandalay Resort Group, 125 Nev. 66, 206

P. sd 81, 87 (Nev. 2009); LANISTVv. Martin K. Eby Constr. Co., 435 S.W.sd 234, 244 (Tex.

2014); Sharon Acad. v. Wieczorek Ins., 2013 Vt. Super. LEXIS 34 (Wash Cty. 2013).

The reason why licensure, for example, is such an important criterion in this setting

that the license in and of itself imposes a legal duty on the licensee to adhere to a level of skill

and a standard of practice that are inherent in the rendition of the service regardless of the

6 terms of any contract. To hold such a license is thus to assume a professional duty of care,

beyond that of the duty to use ordinary care that applies generally, and apart from any duty

specified by contract. Because a professional is accountable for professional negligence

whenever the professional service is rendered, the primary justification for the economic loss

doctrine-the need to maintain a boundary between contract liability and tort liability-

disappears.

Licensure is not the only source of a professional duty of care, as accreditation and

certification standards may serve a similar function in defining such a duty. Pendleton Yacht

Yard, Inc. v. Thomas H. H. Smith & Marine Design & Survey, Inc., 200.3 Me. Super. LEXIS 49.

The services that have been recognized in Maine to be "professional" for purposes of

creating a professional duty of care include those oflawyers, doctors and surveyors-all

occupations requiring licensure and involving defined standards of practice. See Graves v. S.E.

Downey Registered Land Surveyor, P.A., supra, 2005 ME 116 at~ 10, 885 A.2d at 782.

On the other hand, not every service can be said necessarily to be subject to standards of

practice so clearly and widely established as to justify imposing an independent, extra-

contractual duty of care to avoid economic loss on the service provider. 4 Hence, tradespeople

and other providers of commercial services are liable in tort for economic loss only if it is the

result of personal injury or property damage. Otherwise, their liability for economic loss is

defined by the services contract.

Thus, the issue before the court boils down to whether IT providers are within the

professional services exception to the economic loss doctrine that covers lawyers and doctors.

·~ The term "professional services" is a term of art in many insurance policies and contracts, and may have different meanings in different contexts. Plaintiffs reliance on a decision of this court to support its economic loss argument is misplaced-the decision interprets the term "professional services" as used by the parties to a contract, not in the context of the economic loss doctrine, which did not apply inasmuch as the loss claimed in the case included physical damage to tangible property. See 415 Congress Street Properties, LP v. URS Corp., 2011 WL 9377917 (Me. Bus. & Cons. Ct. July SO, 2012). 7 On this record, the court concludes that IT service providers such as the Defendant are

not "professional" service providers for purposes of the economic loss doctrine. There are no

state licenses, laws or rules or regulations specifically for IT service providers, and therefore no

standards for IT services that are so uniformly established and applied as to be inherent in the

rendition of the service. The record also does not indicate the existence of universally accepted

accreditation standards, codes of professional conduct or other codified standards of practice

that might be the equivalent oflicensing standards. In other words, what is lacking is the basis

for defining and imposing an extra-contractual duty of professional care, enforceable in tort.

This conclusion means that the Defendant's liability in tort is limited to claims for personal

injury and physical damage, and that the Defendant's liability for pure economic loss is defined

by the services contract.

Plaintiff appears to make a fallback argument that the Defendant is liable in tort because

the Defendant's services caused damage to Plaintiffs property-computer data lost due to

negligence on the part of the Defendant. However, the loss of computer data is a loss of

intangible property-information-that does not qualify as physical damage to tangible

property for purposes of imposing liability for ordinary negligence. As noted above, "there is

no general duty to exercise reasonable care to avoid intangible economic loss or losses to others

that do not arise from tangible physical harm to persons and tangible things." W. Keeton, D. Dobbs,

R. Keeton & D. Owen, PROSSER AND KEETON ON THE LAW OF TORTS, supra§ 92 at 657 (5th ed.

1984)(emphasis added). See also Rockport Pharmacy Inc. v. Digital Simplistics, Inc., 53 F.sd 195,

198 (8th Cir. 1995).

Accordingly, because the loss or damage alleged by Plaintiff is limited to economic loss

and does not include personal injury or physical damage to tangible property, because

Defendant's services were rendered under a contract with Plaintiff, and because the Defendant's

services were not "professional" services giving rise to an independent duty of due care

8 enforceable in tort, the economic loss doctrine applies, and the Defendant is entitled to partial

summary judgment on the Plaintiffs negligence claims against it.

It is hereby ORDERED: The Motion for Partial Summary Judgment filed by

Defendant Enables, It, Inc. is granted. Defendant is granted judgment on Counts II and III of

the First Amended Complaint.

Pursuant to M.R. Civ. P. 79(a), the Clerk is hereby directed to incorporate this order by

reference in the docket. _.' )"' ./ / /'

';/;", /

~- Dated November /b,2015 /, !t• ./,·.· ,,';" ,'/I I' { ;'/"/','/ L / ( / i..· '

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A.M. Horton Justice, Business and Consumer Court

~ntt;red on the Docket: /!-1 C. -I) •JOpies sent via Man_ Electronically?"'

9 Eye Care & Eye Ware Center of Maine Plaintiff

v. DOCKET NO. BCD-CV-2014-55

Enables IT Inc., f/k/a Nexus Management, Inc. Defendant

v.

Unified Technologies, Inc., nka UT Wind-Down Third-Party Defendant

Jeffrey Edwards, Esq. & Benjamin Piper, Esq. Eye Care & Eye Ware Center of Maine One City Center P.O. Box 9546 Portland, ME 04112-9546

Benjamin Leoni, Esq. One Canal Plaza Enables IT Inc. Suite 1000 P.O. Box 7320 Portland, ME 04112-7320

William Druary, Jr., Esq. Unified Technologies, Inc., N/K/A UT 44 Elm Street Wind-Down P.O. Box 708 Waterville, ME 04901-0708