The Ascot Corp., LLC v. I&R Waterproofing

• Court: Court of Appeals of North Carolina
• Decided: November 15, 2022
• Docket: 22-19
• Status: Published

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

2022-NCCOA-747

No. COA22-19

Filed 15 November 2022

Moore County, No. 19-CVS-998

THE ASCOT CORPORATION, LLC; and HERONSBROOK, LLC; Plaintiffs,

v.

I&R WATERPROOFING, INC., Defendant/Third-Party Plaintiff,

TREMCO BARRIER SOLUTIONS, INC.; TANGLEWOOD LANDSCAPING, LLC; and PEDRO PACHECO JIMENEZ; Third-Party Defendants.

Appeal by Defendant/Third-Party Plaintiff from orders entered 4 August 2021

by Judge James M. Webb in Moore County Superior Court. Heard in the Court of

Appeals 9 August 2022.

Bovis Kyle Burch & Medlin, LLC, by Matthew A. L. Anderson and Brian H. Alligood, for Defendant/Third-Party Plaintiff-Appellant I&R Waterproofing, Inc.

Oak City Law LLP, by M. Caroline Lindsey Trautman and Robert E. Fields, III, for Third-Party Defendant-Appellee Tremco Barrier Solutions, Inc.

Hedrick Gardner Kincheloe & Garofalo LLP, by M. Duane Jones, David L. Levy, and Matthew R. Lancaster, for Third-Party Defendant-Appellee Tanglewood Landscape, LLC.

COLLINS, Judge.

¶1 Defendant/Third-Party Plaintiff I&R Waterproofing, Inc., appeals from orders THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

Opinion of the Court

dismissing its complaints against Third-Party Defendants Tremco Barrier Solutions,

Inc., and Tanglewood Landscape, LLC,1 for failure to state a claim under N.C. Gen.

Stat. § 1A-1 Rule 12(b)(6). The trial court properly dismissed I&R’s claims against

Tremco for breach of express warranty, indemnity, and contribution. However, I&R

sufficiently pled breach of implied warranty of merchantability against Tremco, and

sufficiently pled indemnity and contribution against Tanglewood, and the trial court

erred by dismissing those claims. We affirm in part and reverse in part, and remand

for further proceedings.

I. Procedural History and Factual Background

¶2 This appeal stems from a complaint filed by Ascot Corporation, LLC, and

Heronsbrook, LLC, (collectively, Plaintiffs) against I&R arising from alleged

residential construction defects causing water intrusion and resulting damage. In

March 2016, Ascot, a residential construction general contractor, contracted with I&R

to provide waterproofing services in the basement of a residence owned by

Heronsbrook. These services included installing a TUFF-N-DRI waterproofing

barrier system manufactured by Tremco. Ascot separately contracted with

Tanglewood to landscape the surrounding property.

1 I&R’s third-party complaint names “Tanglewood Landscaping, LLC” as the third- party defendant. Tanglewood’s Motion to Dismiss asserts that “Tanglewood Landscape, LLC” is the appropriate entity to be named in this action. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶3 In July 2016, Heronsbrook sold the property to Steve and Jennifer Stoops.2

Two years later, the Stoops discovered water intrusion in their basement that had

caused significant damage. During the following year, Ascot unsuccessfully

attempted to have I&R diagnose and repair the water intrusion. In May 2019, Ascot

independently resolved the water intrusion and repaired the damage to the

basement, incurring costs in excess of $50,000.

¶4 In August 2019, Plaintiffs filed a complaint against I&R, asserting claims for

breach of contract, breach of implied warranty of habitability and good workmanship,

negligence, and unfair and deceptive trade practices, and seeking to recover the costs

incurred for the repairs to the basement, treble damages, and attorneys’ fees. With

leave of court, I&R filed a third-party complaint pursuant to Rule 14(a) of the North

Carolina Rules of Civil Procedure, seeking “compensatory damages and/or

contribution” from Tremco and/or Tanglewood, in the event I&R was found liable to

Plaintiffs.3 I&R’s complaint asserted claims against Tremco for breach of express

warranty, breach of implied warranty of merchantability, negligence, and

contribution, and claims against Tanglewood for negligence and contribution.

¶5 Tremco moved to dismiss I&R’s complaint under Rule 12(b)(6). Tanglewood

2The Stoops are not parties to the present litigation. 3I&R also joined third-party defendant Pedro Pacheco Jimenez. The claims against Jimenez are not at issue on this appeal. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

answered and moved to dismiss the complaint under Rule 12(b)(6). The trial court

heard the motions to dismiss and entered orders on 4 August 2021 dismissing all

claims against Tremco and Tanglewood with prejudice. The trial court certified the

orders for immediate review under N.C. Gen. Stat. § 1A-1 Rule 54(b). I&R appealed.

II. Discussion

A. Jurisdiction

¶6 I&R appeals from orders dismissing all claims against fewer than all parties.

A final judgment as to “one or more but fewer than all of the claims or parties” is

immediately appealable if the trial court certifies that “there is no just reason [to]

delay” the appeal. N.C. Gen. Stat. § 1A-1, Rule 54(b) (2021). Here, the trial court

properly certified the orders for immediate review under Rule 54(b). Accordingly,

this Court has jurisdiction.

B. Standard of Review

¶7 In ruling on a Rule 12(b)(6) motion to dismiss, “the allegations of the complaint

must be viewed as admitted, and on that basis the court must determine as a matter

of law whether the allegations state a claim for which relief may be granted.”

Stanback v. Stanback, 297 N.C. 181, 185, 254 S.E.2d 611, 615 (1979) (citation

omitted). “[T]he well-pleaded material allegations of the complaint are taken as

admitted; but conclusions of law or unwarranted deductions of fact are not admitted.”

Sutton v. Duke, 277 N.C. 94, 98, 176 S.E.2d 161, 163 (1970) (quotation marks and THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

citation omitted). Additionally, “when ruling on a Rule 12(b)(6) motion, a court may

properly consider documents which are the subject of a plaintiff’s complaint and to

which the complaint specifically refers even though they are presented by the

defendant.” Oberlin Cap., L.P. v. Slavin, 147 N.C. App. 52, 60, 554 S.E.2d 840, 847

(2001) (citation omitted).

¶8 Dismissal under Rule 12(b)(6) is proper only in the following circumstances:

“(1) the complaint on its face reveals that no law supports the plaintiff’s claim; (2) the

complaint on its face reveals the absence of facts sufficient to make a good claim; or

(3) the complaint discloses some fact that necessarily defeats the plaintiff’s claim.”

Wood v. Guilford Cnty., 355 N.C. 161, 166, 558 S.E.2d 490, 494 (2002) (citation

omitted). We review de novo a trial court’s order allowing a motion to dismiss for

failure to state a claim pursuant to Rule 12(b)(6). Cheryl Lloyd Humphrey Land Inv.

Co., v. Resco Prods., Inc., 377 N.C. 384, 2021-NCSC-56, ¶ 8 (citation omitted).

C. Claims Against Tremco

1. Breach of Express Warranty

¶9 I&R first argues that its complaint states a valid claim for relief against

Tremco for breach of express warranty. Specifically, I&R argues that it states a valid

claim against Tremco for breach of Tremco’s 30-Year TUFF-N-DRI Basement

Waterproofing Warranty.

¶ 10 An express warranty is created when a seller makes “any affirmation of fact or THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

promise . . . which relates to the goods and becomes part of the basis of the bargain.”

N.C. Gen. Stat. § 25-2-313(1)(a) (2021). To state a claim for breach of express

warranty, a plaintiff must allege (1) that an express warranty was made as to a fact

or promise relating to the goods, (2) that the warranty was relied upon by the plaintiff

in making his decision to purchase, and (3) that this express warranty was breached

by the defendant. Harbor Point Homeowners’ Ass’n v. DJF Enters., Inc., 206 N.C.

App. 152, 162, 697 S.E.2d 439, 447 (2010) (citation omitted). “A warranty, express or

implied, is contractual in nature.” Wyatt v. N.C. Equip. Co., 253 N.C. 355, 358, 117

S.E.2d 21, 24 (1960). “As a contract being interpreted, the terms of an express

warranty are therefore construed in accordance with their plain meaning[.]” Hills

Mach. Co., LLC v. Pea Creek Mine, LLC, 265 N.C. App. 408, 416, 828 S.E.2d 709, 715

(2019) (quotation marks and citation omitted). “An issue of contract interpretation is

a question of law reviewed de novo.” D.W.H. Painting Co. v. D.W. Ward Constr. Co.,

174 N.C. App. 327, 330, 620 S.E.2d 887, 890 (2005) (citation omitted).

¶ 11 In its complaint for breach of an express warranty, I&R alleges the following:

7. In March 2016, I&R contracted with Plaintiff The Ascot Corporation, LLC to install a waterproofing membrane barrier system at an existing residential construction site located at 590 Heronsbrook Drive, Whispering Pines, North Carolina (the “Property”). 8. On or about March 10, 2016, I&R completed the installation of the waterproofing membrane barrier system, which consisted of the TUFF-N-DRI HS membrane product, the Warm-N-Dri® foundation board, and a THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

DrainStar® Strip Drain (collectively the “Tremco Barrier System”). 9. Upon information and belief, the Tremco Barrier System installed at the Property by I&R was produced, designed, manufactured, assembled, inspected, and sold by Third-Party Defendant Tremco. 10. The Tremco Barrier System installed by I&R was sold with a written 30-year limited warranty, pursuant to which Tremco expressly warranted that the Tremco Barrier System would, under normal use and service, keep the vertical surface of the Property’s foundation wall “free of water leakage or seepage” throughout the warranty period.” 11. I&R is a “Tremco Barrier Solutions Contractor” as that phrase is used in Tremco’s written 30-year limited warranty. .... 14. Upon information and belief, Tremco has been notified of the alleged excess water penetration described in Plaintiffs’ Complaint, but has refused to honor the terms of its written 30-year limited warranty. 15. If Plaintiffs should recover damages based on the alleged excess water penetration described in Plaintiffs’ Complaint, such recovery will be a proximate result of Tremco’s breach of its express written warranty. 16. As a direct and proximate result of Tremco’s breach of its express warranty, I&R is entitled to receive from Tremco any amounts awarded to Plaintiffs against I&R with respect to claims arising from I&R’s installation of the Tremco Barrier System during construction of the residence on the Property.

¶ 12 Attached as Exhibit A to Tremco’s motion to dismiss was the warranty

referenced in I&R’s complaint. The warranty states: THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

This Warranty is From: This limited warranty (“Warranty”) is provided by Tremco Barrier Solutions, Inc. (“TBS”) . . . . This Warranty is To: You if you are a consumer purchaser (“Buyer”) of (1) a new single family detached residence, or (2) a multi-family unit with separate unit ownership, or (3) a multi-family residence with single ownership which has had TUFF-N- DRI System . . . applied to the building’s foundation walls. .... Limitations and Exceptions: .... B. This Warranty does not apply and TBS has no responsibility for Leakage resulting from: .... 11. Application of the TUFF-N-DRI System by a contractor other than a TBS Contractor.

¶ 13 I&R did not allege that the warranty was relied upon in making its decision to

purchase the TUFF-N-DRI System. See Harbor Point, 206 N.C. App. at 162, 697

S.E.2d at 447 (citation omitted); cf. Ford Motor Credit Co. v. McBride, 257 N.C. App.

590, 596, 811 S.E.2d 640, 646 (2018) (defendants’ allegations were sufficient to state

a claim for breach of express warranty where defendants alleged, inter alia, “that

they relied on this express warranty when purchasing the vehicle and would not have

purchased it had [the] agents not represented to them that the vehicle was in ‘good

working order and fit to transport’ them both”). Furthermore, the terms of the

warranty, construed in accordance with their plain meaning, indicate that the THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

warranty does not extend to, and thus is not enforceable by, I&R. According to the

terms, the warranty extends to the “consumer purchaser” of a new residence or unit

in which the TUFF-N-DRI System has been applied to the building’s foundation

walls. As I&R did not allege that it is a “consumer purchaser” of a qualifying

residence or unit, I&R did not allege that the warranty extends to I&R.

¶ 14 I&R argues that its allegation that it “is a ‘Tremco Barrier Solutions

Contractor’ as that phrase is used in Tremco’s written 30-year limited warranty” is

sufficient to allege the warranty extends to I&R. This argument belies the plain

meaning of warranty’s terms. The phrase “TBS contractor,” as used in paragraph 11

under Limitations and Exceptions, is a requirement that the TUFF-N-DRI System

be installed by a TBS contractor for a consumer purchaser to be entitled to the

warranty’s protection; the phrase does not extend the warranty to I&R.

¶ 15 Citing Sharrard, McGee & Co., P.A. v. Suz’s Software, Inc., 100 N.C. App. 428,

432, 396 S.E.2d 815, 817 (1990), I&R argues that it “need not even have purchased

the Tremco Barrier System itself to recover for Tremco’s breach of its express

warranty, because North Carolina law does not restrict an action for breach of an

express warranty to parties in privity of contract.” I&R’s reliance on Sharrard is

misplaced.

¶ 16 In Sharrard, this Court addressed whether plaintiff had been assigned its

right to sue defendant. 100 N.C. App. at 429, 396 S.E.2d at 816. Plaintiff accounting THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

firm negotiated the purchase of a software system from defendant software company

for plaintiff’s client, Guilford Plumbing Supply, Inc. (“GPS”). Id. at 430, 396 S.E.2d

at 816. During the negotiations, defendant wrote a letter to plaintiff, specifically

referencing GPS and guaranteeing defendant’s programming with full return and

refund privileges should the programming not perform as warranted. Id. at 432-33,

396 S.E.2d at 818. Defendant also made several oral guarantees to plaintiff and GPS,

and provided GPS employees an instruction manual. Id. at 430, 396 S.E.2d at 816.

Shortly after installation, the software system proved defective. Id. at 430, 396

S.E.2d at 816-17. When defendant refused plaintiff’s refund demand, plaintiff filed

suit. Id.

¶ 17 On appeal, this Court analyzed whether GPS had a legally cognizable claim to

assign to plaintiff. Rejecting defendant’s argument that privity must have existed

between it and GPS before GPS would have any right to sue defendant for breach of

express warranty, this Court stated, “[p]rivity is not required when the theory is

breach of an express warranty.” Id. at 432, 396 S.E.2d at 817 (citing Kinlaw v. Long

Mfg. N.C., Inc., 298 N.C. 494, 259 S.E.2d 552 (1979)). The Court further explained

that “[t]he absence of contractual privity no longer bars a direct claim by an ultimate

purchaser against the manufacturer for breach of the manufacturer’s express

warranty which is directed to the purchaser.” Id. (citation omitted). Accordingly, for

plaintiff to show that GPS had a legally cognizable claim to assign, plaintiff had only THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

to show that the warranty was “addressed to the ultimate consumer or user.” Id. at

433, 396 S.E.2d at 818 (quoting Wyatt, 253 N.C. at 359, 117 S.E.2d at 24).

¶ 18 Because defendant’s letter was intended to warrant its products to GPS and it

was reasonable for GPS to rely upon defendant’s representations, this Court affirmed

the trial court’s conclusion that an express warranty existed between GPS and

defendant. Id. Because GPS had a valid claim for breach of express warranty that it

could assert by itself, plaintiff, as assignee, was entitled to assert its claim against

defendant. Id.

¶ 19 In this case, the warranty at issue was addressed to the “consumer purchaser”

of a new residence or unit in which the TUFF-N-DRI System had been applied to the

building’s foundation walls – the ultimate consumers or users. Under Sharrard, the

Stoops, as the ultimate consumers, could have a breach of express warranty claim

against Tremco to assign. Unlike Sharrard, however, I&R did not assert a claim

assigned to it by the Stoops. As I&R did not assert an assigned claim, and the express

warranty does not extend to, and thus is not enforceable by, I&R, the trial court did

not err by dismissing the breach of express warranty claim.

2. Breach of Implied Warranty of Merchantability

¶ 20 I&R next argues its complaint states a valid claim for relief against Tremco for

breach of implied warranty of merchantability.

¶ 21 “Unless excluded or modified (G.S. 25-2-316), a warranty that the goods shall THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

be merchantable is implied in a contract for sale if the seller is a merchant with

respect to goods of that kind.” N.C. Gen. Stat. § 25-2-314(1) (2021). To state a claim

for breach of implied warranty of merchantability, a plaintiff must allege

(1) that the goods bought and sold were subject to an implied warranty of merchantability, (2) that the goods did not comply with the warranty in that the goods were defective at the time of sale, (3) that [plaintiff’s] injury was due to the defective nature of the goods, and (4) that damages were suffered as a result.

DeWitt v. Eveready Battery Co., 355 N.C. 672, 683, 565 S.E.2d 140, 147 (2002)

(quotation marks and citation omitted). “A product defect may be shown by evidence

a specific defect existed in a product. Additionally, when a plaintiff does not produce

evidence of a specific defect, a product defect may be inferred from evidence the

product was put to its ordinary use and the product malfunctioned.” Id. at 684, 565

S.E.2d at 147 (citation omitted).

¶ 22 I&R’s complaint for breach of implied warranty of merchantability alleges:

17. I&R hereby incorporates and re-alleges the allegations set forth above, and incorporates and re-alleges the allegations of the Plaintiffs’ Complaint and I&R’s Amended Answer and Affirmative Defenses thereto to the extent not inconsistent herewith. 18. The Tremco Barrier System sold by Tremco, and purchased and installed at the Property by I&R, was subject to an implied warranty of merchantability, whereby Tremco warranted that the Tremco Barrier System was of merchantable quality and reasonably fit for the purpose for which it was intended. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

19. I&R put the Tremco Barrier System to its ordinary use by installing it on the foundation walls of the Property in a workmanlike manner, in accordance with all product directions and instructions provided by Tremco, and in compliance with all laws, ordinances, rules, regulations, and requirements of all governing authorities having jurisdiction over construction of the residence on the Property. 20. If the allegations set forth in the Complaint of excess water penetration in the foundation walls of the residence on the Property are true, then the Tremco Barrier System malfunctioned after being put to its ordinary use. 21. Accordingly, if Plaintiff should recover damages based on the alleged excess water penetration described in Plaintiffs’ Complaint, such recovery will be due to the defective nature of the Tremco Barrier System, and a proximate result of Tremco’s breach of the implied warranty of merchantability. 22. As a direct and proximate result of Tremco’s breach of the implied warranty of merchantability, I&R is entitled to receive from Tremco any amounts awarded to Plaintiffs against I&R with respect to claims arising from I&R’s installation of the Tremco Barrier System during construction of the residence on the Property.

¶ 23 These allegations are sufficient to state a claim for breach of implied warranty

of merchantability. I&R alleges that the Tremco Barrier System sold by Tremco and

purchased by I&R was subject to an implied warranty of merchantability, satisfying

the first element of the claim. I&R also alleges it put the Tremco Barrier System to

its ordinary use by installing it on the foundation walls in a workmanlike manner, in

accordance with all directions and rules, and that assuming excess water penetrated

the foundation walls, the Tremco Barrier System malfunctioned, satisfying the THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

second element of the claim. I&R further alleges that Plaintiffs’ recovery of damages

from I&R for excess water penetration would be due to the defective nature of the

Tremco Barrier System and that as a direct and proximate result of Tremco’s breach

of the implied warranty of merchantability, I&R is entitled to receive from Tremco

any amounts awarded to Plaintiffs against I&R for the defective Tremco Barrier

System. These allegations satisfy the third and fourth elements of the claim.

¶ 24 Tremco argues that “I&R fails to allege anywhere in its pleading that a defect

existed in a Tremco product at the time of sale, or what defect existed.” However, I&R

need not have alleged a specific defect in the Tremco Barrier System. Under what has

been referred to as the “malfunction theory” and the “indeterminate defect theory,”

DeWitt, 355 N.C. at 686, 565 S.E.2d at 149, a defect may be inferred from evidence that

the Tremco Barrier System was put to its ordinary use and subsequently malfunctioned.

I&R’s allegations are sufficient to allege a product defect under this theory.

¶ 25 Tremco further argues that I&R’s allegation that “if the allegations set forth in

Plaintiffs’ complaint are true, then the Tremco Barrier System malfunctioned after being

put to its ordinary use” is a conclusory statement that fails to establish a necessary

element of a claim for breach of implied warranty of merchantability. We disagree.

¶ 26 Plaintiffs made various allegations in their complaint that water penetrated the

foundation walls where I&R had applied water proofing; I&R incorporates those

allegations into its compliant. I&R further alleges that the Tremco Barrier System was THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

put to its ordinary use when I&R correctly installed it on the foundation walls. I&R thus

alleges that if water penetrated the foundation walls, the Tremco Barrier System

malfunctioned. Any duty to produce “adequate circumstantial evidence of a defect”

does not arise until later stages of the proceedings, and I&R’s allegations at this initial

pleading stage are sufficient to allege a product defect at the time of sale. See Coastal

Leasing Corp. v. O’Neal, 103 N.C. App. 230, 237, 405 S.E.2d 208, 213 (1991) (allegations

in the crossclaim were sufficient to raise the inference that any defects in the equipment

existed at the time of sale).

¶ 27 Tremco further argues that I&R’s breach of express warranty and breach of

implied warranty of merchantability claims should be dismissed as they are not

proper impleader claims under Rule 14. We disagree.

¶ 28 Before Rule 14 was enacted in 1967, North Carolina lacked an adequate

procedural rule governing third-party practice. Accordingly, North Carolina courts

constructed a set of judicial rules for impleading by drawing upon statutes which

suggested impleader was appropriate peripherally or in a specific situation,

including: N.C Gen. Stat. § 1-73, which authorized the court to join parties who were

necessary for a “complete determination of the controversy”; N.C. Gen. Stat. § 1-222,

which provided that judgments may determine “the ultimate rights of the parties on

each side, as between themselves”; and N.C. Gen. Stat. § 1-240, which allowed joinder

of third-parties who were joint tortfeasors. See, e.g., Davis v. Radford, 233 N.C. 283, THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

287-89, 63 S.E.2d 822, 826-27 (1951) (contemplating third-party practice prior to Rule

14’s enactment); Moore v. Massengill, 227 N.C. 244, 245-46, 41 S.E.2d 655, 656 (1947)

(interpreting § 1-73).

¶ 29 As the original Comment to Rule 14 notes, “none of these statutes dealt directly

with (1) the grounds for impleading (except § 1-240, dealing narrowly with

contribution between joint tort-feasors); (2) the procedure by which a third-party

plaintiff impleads a third-party defendant; or (3) the kinds of claims that may, after

impleader is accomplished, be asserted[.]” N.C. Gen. Stat. § 1A-1, R. 14, cmt. (2021).

Nevertheless, the courts developed procedures for impleading within this statutory

framework, and the basic rule which evolved permitted impleading only when the

claim by the third-party plaintiff was for: “(1) contribution against an alleged joint

tort-feasor under § 1-240, or (2) indemnification, but only when the indemnification

right arose as a matter of law, and not by express or implied contract.” Id.

¶ 30 In contrast to North Carolina’s approach at the time, Rule 14 of the Federal

Rules of Civil Procedure was adopted in 1937 to govern third-party practice in federal

court. Federal Rule 14 provided a “direct and plain statement of the substantive test

for impleading,” prescribed “clearly and concisely the procedure for impleading where

the right exists,” and concluded with a clear statement “of the various claims which

may, after a third-party defendant is impleaded, be asserted by the various parties[.]”

Id. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶ 31 Thirty years after federal Rule 14’s adoption, North Carolina enacted Rule 14

of our North Carolina Rules of Civil Procedure which mirrors the federal rule. See

An Act to Amend the Laws Relating to Civil Procedure, 1967 N.C. Sess. Laws 1274

(enacting the Rules of Civil Procedure and repealing, among others, §§ 1-73 and

1-222).4 North Carolina Rule 14 provides, in relevant part,

At any time after commencement of the action a defendant, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff ’s claim against him.

N.C. Gen. Stat. § 1A-1, R. 14(a) (2021). While this language gives the right to implead

for contribution and indemnification based in tort as had judicially evolved under

North Carolina practice, this language does not limit the right to implead to solely

those situations. For example, like the federal rule, North Carolina Rule 14 allows

impleading for indemnification where the right to be indemnified has arisen out of

contract. See id. (expressly contemplating assignees and third-party beneficiaries of

contracts); see also Brogle v. S.C. Elec. & Gas Co., 509 F.2d 1216, 1217 n.1 (4th Cir.

1975) (noting that impleading a party for contractual indemnity is covered by Rule

14).

4The Uniform Contribution Among Tort-Feasors Act, passed the same week as the Act to Amend the Laws Relating to Civil Procedure, repealed § 1-240. An Act to Provide for Contribution Among Joint Tortfeasors and Joint Obligors, § 2, 1967 N.C. Sess. Laws 1091, 1093. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶ 32 As with federal Rule 14, “[t]he purpose of [North Carolina] Rule 14 is to

promote judicial efficiency and the convenience of parties by eliminating circuity of

action.” Heath v. Bd. of Comm’rs, 292 N.C. 369, 376, 233 S.E.2d 889, 893 (1977).

When the rights of all three parties center upon a common factual setting, economies of time and expense can be achieved by combining the suits into one action. Doing so eliminates duplication in the presentation of evidence and increases the likelihood that consistent results will be reached when multiple claims turn upon identical or similar proof. Additionally, the third-party practice procedure is advantageous in that a potentially damaging time lag between a judgment against defendant in one action and a judgment in his favor against the party ultimately liable in a subsequent action will be avoided. In short, Rule 14 is intended to provide a mechanism for disposing of multiple claims arising from a single set of facts in one action expeditiously and economically.

Id. (quoting 6 Charles Allen Wright & Arthur R. Miller, Federal Practice & Procedure

§1442 (1971)); see also Am. Exp. Lines, Inc. v. Revel, 262 F.2d 122, 124-25 (4th Cir.

1958).

¶ 33 At the heart of Rule 14 is the notion that the third-party complaint must be

derivative of the original claim. “If the original defendant is not liable to the original

plaintiff, the third-party defendant is not liable to the original defendant.” Jones v.

Collins, 58 N.C. App. 753, 756, 294 S.E.2d 384, 385 (1982). Thus, “[a] claim which is

independent of the defendant’s possible liability to the plaintiff cannot be the basis of

impleader under Rule 14.” Spearman v. Pender Cnty. Bd. of Educ., 175 N.C. App. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

410, 412, 623 S.E.2d 331, 333 (2006) (quotation marks and citations omitted); see also

Horn v. Daniel, 315 F.2d 471, 474 (10th Cir. 1962) (“[Rule 14] does not permit the

joinder of actions of persons who may have a claim against the defendant

independently of the plaintiff’s claim.”). “The crucial characteristic of a Rule 14 claim

is that defendant is attempting to transfer to the third-party defendant the liability

asserted against defendant by the original plaintiff.” 6 Charles Allen Wright &

Arthur R. Miller, Federal Practice & Procedure § 1446 (3d ed. 2010). Nevertheless,

“[t]he third party claim need not be based on the same theory as the main claim.” Id.

¶ 34 Here, I&R alleges that its harm, an essential element of its breach of implied

warranty of merchantability claim, depends on the outcome of Plaintiffs’ case against

them. Additionally, Plaintiffs’ claim forms the basis of I&R’s complaint – the facts

and circumstances that give rise to Plaintiffs’ complaint are the same facts and

circumstances that form I&R’s breach of implied warranty of merchantability claim.

Thus, I&R’s claim is derivative of Plaintiffs’ claim and properly impleaded under Rule

14.

¶ 35 Because I&R has pled facts sufficient to state a claim for breach of implied

warranty of merchantability, and the claim is derivative of Plaintiffs’ claims against

I&R, the trial court improperly dismissed the claim.

3. Negligence (Common Law Indemnity)

¶ 36 I&R next argues that its complaint states a valid claim for relief against THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

Tremco for negligence.

¶ 37 We note that I&R has alleged common law indemnity in the form of indemnity

implied-in-law, as opposed to merely negligence. In North Carolina, a party’s rights

to indemnity can rest on “equitable concepts arising from the tort theory of indemnity,

often referred to as a contract implied-in-law.” Kaleel Builders, Inc. v. Ashby, 161

N.C. App. 34, 38, 587 S.E.2d 470, 474 (2003) (citations omitted). “[I]ndemnity

implied-in-law arises from an underlying tort, where a passive tort-feasor pays the

judgment owed by an active tort-feasor to the injured third party.” Id. at 39, 587

S.E.2d at 474. Therefore, “to successfully assert a right to indemnity based on a

contract implied-in-law, a party must [sufficiently allege] each of the elements of an

underlying tort such as negligence.” Schenkel & Shultz, Inc. v. Hermon F. Fox &

Assocs., 180 N.C. App. 257, 268, 636 S.E.2d 835, 843 (2006).

¶ 38 “To state a claim for common law negligence, a plaintiff must allege: (1) a legal

duty; (2) a breach thereof; and (3) injury proximately caused by the breach.” Fussell

v. N.C. Farm Bureau Mut. Ins. Co., 364 N.C. 222, 226, 695 S.E.2d 437, 440 (2010)

(citation omitted). “The mere fact that a pleader alleges that an act is one of

negligence does not make it so.” Stamey v. Rutherfordton Elec. Membership Corp.,

247 N.C. 640, 646, 101 S.E.2d 814, 819 (1958). “An allegation of negligence must be

sufficiently specific to give information of the particular acts complained of; a general

allegation without such particularity does not set out the nature of plaintiff’s demand THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

sufficiently to enable the defendant to prepare his defense.” Id. at 645, 101 S.E.2d at

818 (citation omitted).

¶ 39 In its third-party complaint, I&R alleges:

23. I&R hereby incorporates and re-alleges the allegations set forth above, and incorporates and re-alleges the allegations of the Plaintiffs’ Complaint and I&R’s Amended Answer and Affirmative Defenses thereto to the extent not inconsistent herewith. 24. Tremco had a duty to produce, design, manufacture, assemble, and inspect the Tremco Barrier System installed at the Property in the manner of a reasonably prudent manufacturer of the same or similar goods, under the same or similar circumstances, and in accordance with all laws, ordinances, rules, regulations, and requirements of all governing authorities having jurisdiction over construction of the Property. 25. If the allegations set forth in the Complaint of excess water penetration in the foundation walls of the residence on the Property are true, then Tremco was negligent in the production, design, manufacture, assembly, and/or inspection of the Tremco Barrier System, and in breach of its duties to I&R. 26. The negligence of Tremco supersedes any alleged negligence or fault of I&R (which negligence or fault is denied). 27. Any fault or negligence by I&R (which negligence or fault is denied) was passive and secondary in light of the primary and active fault or negligence of Tremco. 28. As a direct and proximate result of the negligence of Tremco, I&R is involved in litigation in which it faces liability for Tremco’s own negligence, and I&R has incurred costs and expenses in order to defend and protect its interests. 29. Based on the foregoing, I&R seeks and is entitled to THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

recover damages from Tremco for any amounts that I&R may be found liable to Plaintiffs in this action as a result of Tremco’ s negligence.

¶ 40 The allegations set forth in I&R’s complaint, including all incorporated

allegations, fail to allege facts sufficiently specific to give information of the particular

acts complained of. I&R’s general allegation that “Tremco was negligent in the

production, design, manufacture, assembly, and/or inspection of the Tremco Barrier

System, and in breach of its duties to I&R” was not sufficiently specific and thus does

not set out the nature of I&R’s demand sufficiently to enable Tremco to prepare its

defense. See id.

¶ 41 Because I&R has not sufficiently alleged each of the elements of negligence,

I&R has failed to state a claim for common law indemnity and the claim was properly

dismissed.

4. Contribution

¶ 42 I&R argues that its complaint states a valid claim for contribution against

Tremco.

¶ 43 Contribution is a statutory right of relief in North Carolina governed by the

Uniform Contribution Among Tort-Feasors Act, N.C. Gen. Stat. § 1B-1. The Act

provides, “where two or more persons become jointly or severally liable in tort for the

same injury to person or property or for the same wrongful death, there is a right of

contribution among them even though judgment has not been recovered against all THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

or any of them.” N.C. Gen. Stat. § 1B-1(a) (2021). “Under this statute, there is no

right to contribution from one who is not a joint tort-feasor.” Kaleel Builders, 161

N.C. App. at 43, 587 S.E.2d at 477. Joint tortfeasors are parties whose negligent or

wrongful acts are united in time or circumstance such that the two acts concur to

cause a single injury to a third party. State Farm Mut. Auto. Ins. Co. v. Holland, 324

N.C. 466, 470, 380 S.E.2d 100, 103 (1989) (citation omitted). Thus, in order to join a

third-party for the purpose of contribution, one must allege that the third-party

committed negligent or wrongful acts. See id. at 474-76, 380 S.E.2d at 105-06 (holding

that a third-party who was not negligent could not be jointly liable for the purpose of

contribution).

¶ 44 Here, as discussed above, I&R has failed to sufficiently allege against Tremco

each of the elements of negligence. Without sufficiently alleging that Tremco

committed a tort, I&R cannot allege that Tremco is a joint tortfeasor. See id.

Accordingly, I&R’s complaint on its face reveals the absence of facts sufficient to state

a claim for contribution against Tremco, and its claim for contribution was properly

D. Claims against Tanglewood

1. Negligence (Common Law Indemnity)

¶ 45 I&R argues that its complaint states a valid claim for negligence against

Tanglewood. THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶ 46 As against Tremco, I&R has alleged against Tanglewood common law

indemnity in the form of indemnity implied-in-law, as opposed to merely negligence.

“North Carolina recognizes an implied-in-law right to indemnity when a passive

party is made liable for an active party’s tortious conduct flowing to and injuring a

third party.” Kaleel Builders, 161 N.C. App. at 46, 587 S.E.2d at 478 (citation

omitted). “[T]o successfully assert a right to indemnity based on a contract implied-

in-law, a party must [sufficiently allege] each of the elements of an underlying tort

such as negligence.” Schenkel, 180 N.C. App. at 268, 636 S.E.2d at 843. A party must

also allege that primary and secondary liability for the underlying tort exists between

the parties. See Kaleel Builders, 161 N.C. App. at 41, 587 S.E.2d at 475 (citation

omitted).

¶ 47 The underlying tort alleged here is negligence. To state a claim for negligence,

a plaintiff must allege “(1) a legal duty, (2) a breach thereof, and (3) injury

proximately caused by the breach.” Fussell, 364 N.C. at 226, 695 S.E.2d at 440

(citation omitted).

¶ 48 First, I&R alleges that “Tanglewood subcontracted with The Ascot

Corporation, LLC to perform all landscaping work required during construction of

the Property” and “had a duty to perform its work on the Property in the manner of

a reasonably prudent landscaping contractor under the same or similar

circumstances, and in accordance with all laws, ordinances, rules, regulations, and THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

requirements of all governing authorities having jurisdiction over construction of the

Property.” These allegations satisfactorily allege a legal duty owed. See id. (citation

omitted); Pinnix v. Toomey, 242 N.C. 358, 362, 87 S.E.2d 893, 897 (1955) (“[A] duty

may arise specifically by mandate of statute, or it may arise generally by operation of

law under application of the basic rule of the common law which imposes on every

person engaged in the prosecution of any undertaking an obligation to use due

care[.]”).

¶ 49 Second, I&R alleges that Tanglewood “failed to incorporate a trench drain or

swale during construction of the residence on the Property, as would have been

required to achieve a 5 percent drop in grading within the first 10 feet of the

residence, in violation of Section R401.3 of the North Carolina Residential Code”;

“failed to properly connect or attach the drainpipes to the strip drain component of

the Tremco Barrier System, and failed to install a drainpipe of sufficient length and

location to discharge excess water to daylight, in violation of Section R405 of the

North Carolina Residential Code”; and “breached its duty perform its work on the

Property in the manner of a reasonably prudent landscaping contractor under the

same or similar circumstances, and in accordance with all laws, ordinances, rules,

regulations, and requirements of all governing authorities having jurisdiction over

construction of the Property.” These allegations satisfactorily allege a breach of the

duty of care. See Fussell, 364 N.C. at 226, 695 S.E.2d at 440; Moore v. Moore, 268 THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

N.C. 110, 112-13, 150 S.E.2d 75, 77 (1966) (“The breach of duty may be by negligent

act or a negligent failure to act.”); see also, e.g., Becker v. Graber Builders, Inc., 149

N.C. App. 787, 793, 561 S.E.2d 905, 910 (2002) (plaintiff sufficiently alleged breach

by alleging defendants negligently failed to construct septic system in compliance

with applicable building code).

¶ 50 Third, I&R alleges that “[a]s a direct and proximate result of the negligence of

Tanglewood, I&R is involved in litigation in which it faces liability for work performed

by Tanglewood, and I&R has incurred costs and expenses in order to defend and

protect its interests.” In sum, I&R sufficiently states a claim for negligence against

Tanglewood.

¶ 51 Furthermore, I&R alleges that “[a]ny fault or negligence by I&R . . . was

passive and secondary in light of the primary and active fault or negligence of

Tanglewood[,]” and that it “seeks and is entitled to recover damages from Tanglewood

for any amounts that I&R may be found liable to Plaintiffs in this action as a result

of Tanglewood’s negligence.” These allegations satisfactorily allege a right to

indemnity, should I&R be found liable to Plaintiffs. See Kaleel Builders, 162 N.C.

App. at 41, 587 S.E.2d at 475 (citation omitted).

¶ 52 Tanglewood argues that the trial court correctly dismissed I&R’s indemnity

claim because there is no underlying tort. Specifically, Tanglewood argues that

“Plaintiffs’ viable claims against I&R sound in contract” so “any tort claim against THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

I&R must fail as a matter of law pursuant to the economic loss rule.” However,

Plaintiffs sued I&R for negligence and the record contains no order dismissing

Plaintiffs’ negligence claim. Furthermore, I&R asserts in its brief that its motion to

dismiss Plaintiffs’ negligence claim was denied, and Plaintiffs do not assert

otherwise. Tanglewood essentially asks this Court to decide the viability of Plaintiffs’

pending negligence claim against I&R, an issue that is not properly before us.

¶ 53 In sum, Plaintiffs have sued I&R for negligence, and I&R has sufficiently

alleged that Tanglewood is derivatively liable should Plaintiffs’ claim succeed.

Because I&R has stated a claim for indemnity against Tanglewood, the trial court

erred by dismissing the claim.

2. Contribution

¶ 54 Finally, I&R argues that its complaint states a valid claim for contribution

against Tanglewood.

¶ 55 “[W]here two or more persons become jointly or severally liable in tort for the

same injury to person or property[,] . . . there is a right of contribution among

them . . . .” N.C. Gen. Stat. § 1B-1(a). To join a third-party for the purpose of

contribution, one must allege that the third-party committed negligent or wrongful

acts, and that those negligent or wrongful acts were “united in time or circumstance

such that the two acts . . . cause[d] a single injury.” Holland, 324 N.C. at 470, 380

S.E.2d at 102-03 (citation omitted). THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶ 56 Here, I&R sufficiently alleges Tanglewood’s negligence. Additionally, I&R

alleges that it is liable with Tanglewood as joint tortfeasors to Plaintiffs:

To the extent I&R is subject to liability and damages of any kind, including without limitation direct, indirect, special, general, resulting, consequential, or punitive damages, as well as any costs, expenses, and/or attorney’s fees, as a result of any act or omission of Tanglewood, I&R is entitled to seek contribution from Tanglewood pursuant to the North Carolina Uniform Contribution Among Joint Tortfeasors Act and/or other applicable law. Accordingly, I&R expressly reserves the right to seek contribution from Tanglewood.

¶ 57 Tanglewood argues that it cannot be a joint tortfeasor because Plaintiffs do not

have a viable tort claim against either I&R or Tanglewood, due to the economic loss

rule. Tanglewood again asks this Court to determine the viability of Plaintiffs’

pending negligence claim against I&R, an issue not properly before us. Furthermore,

based on the pleadings before us, the economic loss rule would not bar Plaintiffs from

claiming negligence against Tanglewood.

¶ 58 “[T]he economic loss doctrine ‘prohibits recovery for economic loss in tort.’”

Land v. Tall House Bldg. Co., 165 N.C. App. 880, 884, 602 S.E.2d 1, 4 (2004) (quoting

Moore v. Coachmen Industries, Inc., 129 N.C. App. 389, 401, 499 S.E.2d 772, 780

(1998)). “Instead, such claims are governed by contract law[.] The courts have

construed the term ‘economic losses’ to include damage to the product itself.” Id.

(quotation marks and citations omitted). The economic loss doctrine does not apply THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

where “[t]he injury, proximately caused by the promisor’s negligent, or willful, act or

omission in the performance of his contract, was to property of the promisee other

than the property which was the subject of the contract[.]” N.C. State Ports Auth. v.

Lloyd A. Fry Roofing Co., 294 N.C. 73, 82, 240 S.E.2d 345, 350 (1978) (citing Firemen’s

Mut. Ins. Co. v. High Point Sprinkler Co., 266 N.C. 134, 146 S.E.2d 53 (1966)

(economic loss rule did not apply where contracted-for sprinkler system damaged

promisee’s merchandise); Jewell v. Price, 264 N.C. 459, 142 S.E.2d 1 (1965) (economic

loss rule did not apply where contracted-for furnace burned promisee’s house)) (other

citations omitted).

¶ 59 Here, I&R alleges that “Tanglewood subcontracted with The Ascot

Corporation, LLC to perform all landscaping work required during construction of

the Property.” I&R further alleges that Tanglewood negligently performed its

landscaping work.

¶ 60 In Plaintiffs’ complaint against I&R, Plaintiffs alleged damages

including, but not limited to, repair and remediation costs regarding carpet, personal property of the Stoops, the repair and remediation of foundation wall waterproofing systems, the repair and remediation of wall studs, sheetrock, and electrical fixtures[,] remediation of mold associated with the water penetration and the installation of initial French drains and other drainage devices. In addition, Ascot incurred expenses associated with the Stoops inability to occupy and enjoy their basement for an extended period of time.” THE ASCOT CORP., LLC V. I&R WATERPROOFING, INC.

¶ 61 The damages alleged by Plaintiffs relate to the Stoops’ personal property and

residence, not the landscaping. Because the injury here was to property “other than

the property which was the subject of the contract” between Ascot and Tanglewood,

the economic loss rule would not bar a negligence claim by Plaintiffs against

Tanglewood. Ports Auth., 294 N.C. at 82, 240 S.E.2d at 350.

¶ 62 Because I&R has stated a claim for contribution against Tanglewood, the trial

court erred by dismissing the claim.

III. Conclusion

¶ 63 For the reasons set forth above, I&R has failed to state legally sufficient claims

against Tremco for breach of express warranty, indemnity, and contribution. These

claims were properly dismissed. However, I&R has stated a legally sufficient claim

against Tremco for breach of implied warranty of merchantability. I&R has also

stated legally sufficient claims against Tanglewood for indemnity and contribution.

Accordingly, the trial court’s order dismissing I&R’s claims against Tremco is

affirmed in part and reversed in part, and the trial court’s order dismissing I&R’s

claims against Tanglewood is reversed. The matter is remanded for further

proceedings.

AFFIRMED IN PART; REVERSED IN PART AND REMANDED.

Chief Judge STROUD and Judge ARROWOOD concur.