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City of Whiting v. Whitney, Bailey, Cox, & Magnani LLC

United States District Court, N.D. Indiana, Hammond Division

March 20, 2018

CITY OF WHITING, INDIANA, Plaintiff,
v.
WHITNEY, BAILEY, COX, & MAGNANI, LLC, Defendant.

          OPINION AND ORDER

          JAMES T. MOODY JUDGE

         This matter is before the court on defendant's motion for summary judgment (DE # 50) and defendant's motion to strike (DE # 72). For the reasons stated below, the motion for summary judgment will be granted in part and denied in part. The motion to strike will be denied.

         I. BACKGROUND[1]

         Plaintiff, City of Whiting, Indiana (the “City”), is located along Lake Michigan. (DE # 29 ¶ 7.) The City undertook a project to redevelop 26 acres of waterfront property along the lake. (DE # 69-2 ¶ 3.) This was called the Whiting Lakefront Park Project (the “Project”). (DE # 29 ¶ 5.) In 2009, the City hired an engineering firm, American Structurepoint, Inc. (“Structurepoint”) to be the consultant for the Project. (Id. ¶ 8.) This hiring was established by the terms of the Prime Agreement. (DE # 29-1.)

         In 2010, Structurepoint subcontracted with defendant, Whitney, Bailey, Cox & Magnani, LLC (“WBCM”), for marine engineering services on the Project. (DE # 29-2, the “Subcontract.”) WBCM's services included designing a rock revetment that would be built along the lake for the purpose of shoreline protection. (See DE ## 29 ¶ 23; 29-1 at 16.) According to the City, the revetment failed three times: (1) October 31, 2012, (2) July 28, 2014, and (3) October 31, 2014. (DE # 51-2 at 3.) The City contends these failures resulted in damage to its property located on the site of the Project and costs to repair and reinforce the revetment itself. (Id. at 3-5.) Specifically, the City asserts it was forced to incur expenses related to a walking pathway, landscaping and greenery, and a gazebo. (Id.) There was also damage to existing trees. (DE # 69-5 at 3.) Moreover, the City says it was forced to tear down the existing “Gun Club” structure, which it had intended to convert into a restaurant. (DE ## 51-2 at 5; 69-3 at 3-5.)

         In addition to the issues with the revetment, the City also contends that it authorized construction of a breakwater arm (the “breakwater”) based upon a recommendation from WBCM that such a structure would decrease sedimentation and lower the cost of maintenance dredging. (DE # 29 ¶¶ 36-38.) However, the completed breakwater has not resulted in any decrease in sedimentation or any decrease in the cost of maintenance dredging, according to the City. (Id. ¶ 86.) It also claims WBCM failed to adequately design the breakwater, resulting in additional damages. (Id. ¶ 89.)

         On October 30, 2014, the City and Structurepoint entered into an Assignment Agreement, whereby Structurepoint assigned the Subcontract to the City along with “any and all rights, interests, property, claims, demands, causes of action and choses in action, arising out of contract or tort, which [Structurepoint] may have against WBCM relating to the [Subcontract] and/or the Revetment Failures.” (DE # 29-3 ¶ 2.) The Assignment Agreement also grants the City “the sole and exclusive right to pursue both its own claims and the claims of [Structurepoint] against WBCM relating to the Revetment Failures and/or WBCM's breach of the [Subcontract], or negligent performance of the [Subcontract] or any other failure to perform its obligations on the [Project]. (Id.)

         On October 30, 2014, contemporaneous with the execution of the Assignment, the City and Structurepoint also entered into an agreement titled “Common Interest Agreement and Tolling Agreement” (the “Tolling Agreement”). (DE # 69-2 at 5-13.) The Tolling Agreement stated that “nothing contained in the Assignment Agreement . . . releases [Structurepoint] of or from any duty or liability . . . to [the City] under the [Prime] Agreement” and that Structurepoint's “obligations under the [Prime] Agreement shall remain in full force and effect[.]” (DE # 69-2 ¶ L.) Structurepoint and the City then agreed to toll the statute of limitations on any potential claims one might have against the other, for a certain period of time, in order to allow the parties to achieve a “common interest” and “joint defense.” (Id. ¶ 13.)

         The City has since terminated the Tolling Agreement and has filed a separate suit against Structurepoint. (DE # 69-2 ¶ 10.) That case remained pending as of July 11, 2017. (See id. at ¶ 10, p. 4.)

         Also on October 30, 2014, the City filed a complaint against WBCM in Lake County Superior Court in Indiana. (DE # 5.) WBCM then removed the case to this court. (DE # 1.) The City later filed an amended complaint (DE # 10) and a second amended complaint (DE # 29). The second amended complaint, filed April 20, 2016, contains the following six claims: (1) breach of contract (via assignment), (2) negligence, (3) breach of contract (third-party beneficiary), (4) breach of warranty (via assignment), (5) indemnity (via assignment), and (6) breach of contract (via assignment) (regarding the breakwater). (DE # 29 at 6-10.)

         On May 12, 2017, WBCM filed its motion seeking summary judgment on all claims against it. (DE # 50.) The City responded to the motion on July 12, 2017. (DE # 69.) Along with its response brief, the City attached a copy of the Tolling Agreement. (DE # 69-2 at 5-13.) The City relies on the Tolling Agreement in support of its indemnity claim. (DE # 69 at 24-25.)

         On April 26, 2017, WBCM filed its reply brief to the motion for summary judgment (DE # 71) and also filed a motion to strike the Tolling Agreement from the City's response (DE # 72). The City responded to the motion to strike (DE # 76), and WBCM filed a reply in support of the motion (DE # 78). Thus, both motions are fully briefed and ripe for review.

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 56 requires the entry of summary judgment, after adequate time for discovery, against a party “who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “[S]ummary judgment is appropriate-in fact, is mandated-where there are no disputed issues of material fact and the movant must prevail as a matter of law. In other words, the record must reveal that no reasonable jury could find for the non-moving party.” Dempsey v. Atchison, Topeka, & Santa Fe Ry. Co., 16 F.3d 832, 836 (7th Cir. 1994) (internal citations and quotation marks omitted).

         The moving party bears the initial burden of demonstrating that these requirements have been met. Carmichael v. Village of Palatine, Ill., 605 F.3d 451, 460 (7th Cir. 2010). “[T]he burden on the moving party may be discharged by ‘showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case.” Celotex, 477 U.S. at 325. Once the moving party has met its burden, the non-moving party must identify specific facts establishing that there is a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Palmer v. Marion Cty., 327 F.3d 588, 595 (7th Cir. 2003) (citing Celotex, 477 U.S. at 324). In doing so, the non-moving party cannot rest on the pleadings alone, but must present fresh proof in support of its position. Anderson, 477 U.S. at 248; Donovan v. City of Milwaukee, 17 F.3d 944, 947 (7th Cir. 1994). In viewing the facts presented on a motion for summary judgment, the court must construe all facts in a light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Chmiel v. JC Penney Life Ins. Co., 158 F.3d 966 (7th Cir. 1998).

         III. DISCUSSION

         A. Count II: Negligence Claim

         In its motion, WBCM argues the City's negligence claim should be dismissed under the economic loss doctrine. (DE # 51 at 5.) Specifically, Indiana's “economic loss rule” precludes tort liability for purely economic loss.[2] Indianapolis-Marion Cty. Pub. Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 727 (Ind. 2010) (hereinafter “IMPCL”). “Rather these losses are viewed as disappointed contractual or commercial expectations.” Gunkel v. Renovations, Inc., 822 N.E.2d 150, 154 (Ind. 2005). This means that when a plaintiff buys an inferior product, and then that product does not perform its generally intended function, he cannot sue in tort for the product's diminution in value, incidental and consequential losses as lost profits, rental expense, or lost time. Id. “Economic loss” also includes “[d]amage to the product itself, including costs of its repair or reconstruction.” Id. On the other hand, the economic loss rule does not shield a defendant from tort liability when “the defect causes personal injury or damages to property other than the product . . . itself.” IMPCL, 929 N.E.2d at 726.

         Tort claims related to construction are subject to the economic loss doctrine. Gunkel, 822 N.E.2d at 155. However, in that context it can be more challenging to define the “defective product” vis-à-vis “other property” since a building or a larger construction project is not a “good” or a “product” in the traditional sense of the word. See id. In the case at hand, the City agrees that the economic loss doctrine applies to its negligence claim and concedes that it can only recover on that claim for damages to property other than defective product itself. (DE # 69 at 16.) But, the parties disagree as to what constitutes the “product” and, conversely, what constitutes “other property.”

         WBCM defines the product broadly, as the entire Project. (DE # 51 at 7.) Accordingly, it argues that damages to any aspect of the lakefront park are barred under the economic loss doctrine. On the other hand, the City notes that the Prime Agreement separates the larger Project into several uniquely numbered projects. (DE # 29-1 at 1-2, 7.) The revetment, as a form of shoreline protection, was a component of Project No. 1. (See id.) Since the revetment was the defective item in this case, the City argues that Project No. 1 is the relevant “product” and that anything listed under a differently numbered project should be considered other property. (DE # 69 at 17.)

         In two relevant cases, the Supreme Court of Indiana has helped to clarify what constitutes a product in the construction context. In IMPCL, the Public Library in the City of Indianapolis brought suit against engineering subcontractors alleging that they provided defective design and inspection services during construction of an underground parking garage built as part of a renovation project of the entire library facility. 929 N.E.2d at 731. The Indiana Supreme Court explained that “the ‘product' is the product purchased by the plaintiff, not the product furnished by the defendant.” Id. There, the Library “purchased a complete renovation and expansion of all the components of its facility as part of a single, highly-integrated transaction.” Id. “The Library did not purchase a blueprint from the Defendants, concrete from the materials supplier, and inspection services . . . in isolation.” Id. Since the entire library facility was the product, any damages resulting from the subcontractors' services was to the product itself, and not to other property. Id. at 732.

         WBCM tries to distinguish IMPCL by saying that it only involved the construction of a single structure/building, unlike the case at hand. (DE # 69 at 17.) However, WBCM provides no legal support for this distinction between a single structure and a larger facility. What matters is what the City purchased-not its size-and, here, the City purchased an entire lakefront park-even if that park was divided into sub-projects by the Prime Agreement. Just as the defective garage in IMPCL was purchased as part of the greater library facility, the defective revetment in this case was purchased as an integral part of the greater lakefront project. Accordingly, the court concludes that the “product” here is the entire Project.

         The other relevant decision from the Supreme Court of Indiana is Gunkel. In Gunkel, the court held consistently with IMPCL that the relevant “product” is the product that is purchased by the plaintiff. 822 N.E.2d at 155. But the court also made the distinction that “property acquired separately from the defective good or service is ‘other property, ' whether or not it is, or is intended to be, incorporated into the same physical object.” Id. In that case, the Gunkels contracted for the construction of a home with one contractor, and then six months later contracted with another company for the installation of a stone façade, which ultimately failed and caused damage to the home. Id. at ...


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