EBWS, LLC v. Britly Corp.

Citations: 2007 VT 37; 928 A.2d 497; 181 Vt. 513; 2007 Vt. 37; 2007 Vt. LEXIS 69Docket: 2005-449

Court: Supreme Court of Vermont; May 25, 2007; Vermont; State Supreme Court

Original Court Document: View Document

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In EBWS, LLC v. Britly Corp., the Vermont Supreme Court addressed a construction dispute stemming from a contract in which Britly Corporation was tasked with building a creamery for EBWS, LLC. After EBWS alleged construction defects, the superior court granted summary judgment for Britly on claims of consumer fraud and negligence. Following a jury trial on remaining claims, EBWS was awarded damages for breach of contract and express warranty. Britly appealed, arguing errors in admitting evidence of consequential damages and in denying a new trial. EBWS cross-appealed, contending the court wrongly granted summary judgment on consumer fraud and negligence claims and denied its request for attorney's fees, costs, and prejudgment interest.

The Supreme Court ruled that the trial court erred in allowing consequential damages and remanded the case for further consideration of attorney's fees, while affirming other aspects of the lower court's decisions. The case details the background of the Ransom family’s decision to build the creamery and the contractual negotiations leading to the agreement with Britly. EBWS had notified Britly of defects shortly after the creamery was completed and subsequently filed suit, asserting multiple claims including negligent design and execution, breach of warranties, and unjust enrichment. The trial court dismissed EBWS's consumer fraud claim and negligence claims before trial, stating they did not meet legal standards under the economic-loss rule.

The trial focused on EBWS's contract claims against Britly, where both parties presented expert testimony regarding construction defects and repair costs. EBWS's expert estimated repair costs at $38,020, necessitating a three-week shutdown during which EBWS would incur $35,711 in losses from wasted milk and employee wages. In contrast, Britly's principal, Tassinari, argued that Britly was not responsible for certain defects and claimed EBWS owed $16,785 for unpaid change orders. Britly's expert estimated the necessary repairs for mold and drainage issues would take three to four days and cost between $7,000 and $8,500.

After a three-day trial, the jury found Britly in breach of contract and awarded EBWS $38,020 in direct damages and $35,711 in consequential damages, while also awarding Britly $3,500 on its counterclaim. Britly then filed a motion for judgment as a matter of law or a new trial, which the trial court denied. EBWS sought attorney's fees. On appeal, Britly argued that consequential damages were not legally available. The court's review of this issue was nondeferential due to undisputed facts. Direct damages are losses that naturally result from a breach, while consequential damages require proof of causation, certainty, and foreseeability. The trial court allowed evidence for costs incurred during the closure but denied EBWS future lost profits. Britly contended that the damages were not certain or foreseeable, but EBWS argued that Britly did not preserve this objection. Ultimately, the conclusion is that the court erred in allowing these damages to be considered by the jury.

EBWS contends that Britly's objection to consequential damages was insufficiently stated, arguing that Britly should have clarified that damages for milk and wages were uncertain and voluntary. However, the court found Britly's objections adequate, fulfilling the requirement under V.R.C.P. 50(a)(2) for a motion for judgment as a matter of law, which allows for timely objections to be made. The court determined that Britly's objection was understood and addressed, allowing EBWS the chance to rectify any proof deficiencies.

During the trial, Britly objected to presenting evidence of consequential damages, asserting that lost profits for a new business are inherently speculative. The court ruled that EBWS could not claim lost profits since it was not a going concern when the contract was formed, deeming those profits too speculative. However, the court permitted evidence of other business losses, including expenses for unused milk and wages. 

At the close of the evidence, Britly renewed its motion for judgment regarding consequential damages, which the court reiterated, excluding lost profits but allowing the jury to assess the certainty and foreseeability of damages for milk and wages. Britly's objections to the jury instructions were sufficiently clear, despite differing terminology, enabling EBWS to address any proof issues and the court to rule accordingly.

Testimony from EBWS's CEO indicated that during a closure, they would need to purchase milk from Rock Bottom Farm despite not being able to process it, a condition they imposed without a written contract. Additionally, it was noted that EBWS would pay employees during this closure without a formal agreement to do so. Consequently, the jury awarded EBWS consequential damages for the costs associated with unused milk and staff wages.

Britly argues that EBWS cannot claim damages for milk purchases or employee payments due to a lack of contractual or legal obligation for these costs, rendering them unforeseeable. EBWS counters that since cows continue to produce milk regardless of the processing plant's operation, these losses are foreseeable. However, the court concludes that such damages are not a foreseeable result of Britly's breach of the construction contract and reverses the award of these damages.

The court references prior case law, specifically Norton v. Lamphere Constr. Co. v. Blow, Cote Inc., where the court distinguished between recoverable consequential damages and those that were not foreseeable. In that case, while damages for wages and equipment alterations were deemed recoverable because they were directly tied to the contract, costs associated with a loader and stone crusher were not, as they were not within the defendant's reasonable contemplation at the time. 

Applying this reasoning, the court finds EBWS's claims for consequential damages analogous to the finance charges in Norton, suggesting that Britly could not reasonably foresee the financial implications of EBWS having to buy and dump milk due to the breach. The milk in question was produced by Rock Bottom Farm, which had no contract with EBWS at the time of the construction agreement, further indicating that such expenses were not foreseeable by Britly. The court also cites Berlin Dev. Corp. v. Vt. Structural Steel Corp. to support that unforeseen damages can arise if circumstances change after the contract is made. Ultimately, the court concludes that EBWS's claims lack the necessary foreseeability to be compensable.

EBWS did not have employment agreements requiring it to pay wages during closures for repairs or other reasons, meaning any potential losses from voluntarily paying employees during such periods would not be considered damages that Britly could foresee at the time of their construction contract. The court emphasized that parties are not expected to be aware of each other's circumstances or third-party contracts unless communicated. Although EBWS may choose to pay employees to foster loyalty, it did not provide evidence supporting this decision as a necessary business rationale, placing it outside the scope of foreseeable damages for contract breaches. Future costs related to wages and milk were deemed uncertain and speculative, as EBWS had not yet operated as a creamery and had no prior history of these expenses. Britly argued that the jury's verdict was against the substantial weight of the evidence, citing that defects in construction were due to contractors under EBWS's control. However, the trial court maintained that evidence should be viewed favorably towards the jury's decision. EBWS's expert testified that construction defects, particularly drainage issues, were a result of Britly's work, indicating that the floor did not meet contract specifications and led to water pooling and mold growth, supporting the jury's ruling in favor of EBWS without any abuse of discretion noted by the court.

Tassinari, the principal of Britly, testified that the plumber, employed by EBWS and beyond Britly's control, improperly installed the drains, leading to drainage issues. He stated that it is not typical for concrete contractors to verify drain elevations. However, evidence favored EBWS's position, supporting the jury's finding of Britly's liability for construction defects. An expert for EBWS asserted that Britly had a duty to inspect the plumber's work and ensure proper floor drainage before pouring concrete, referencing case law indicating that a contractor can be held responsible for defects not directly caused by them.

In EBWS's cross-appeal, it contended that the trial court wrongly dismissed its consumer fraud and negligence claims via summary judgment. Summary judgment is granted when no material facts are genuinely disputed, and the moving party is entitled to judgment as a matter of law. To succeed under Vermont's Consumer Fraud Act, EBWS must show that Britly made misleading representations, that EBWS reasonably interpreted these, and that the misleading effects were significant. EBWS claimed Tassinari made five statements during their initial meeting that constituted consumer fraud and negligent misrepresentation, asserting confidence in completing the creamery project efficiently. However, the trial court found no material evidence that Tassinari's statements were false or misleading, concluding that there was no indication that Britly was incapable of completing the project or that the timeline provided was misleading, especially since the contract was signed after the initial meeting.

EBWS is appealing the trial court's dismissal of its negligence claims, which the court ruled were subject to the economic-loss rule due to the claims involving only economic damages. EBWS argued that Britly's work constituted a professional service, invoking a professional-services exception to the economic-loss rule. The trial court found that a special relationship necessary for such an exception was absent, leading to the dismissal of EBWS's claims. On appeal, EBWS contends that the design and construction of the creamery should be classified as a professional service similar to architecture. However, Britly countered that it is not a licensed architect and therefore did not provide professional services as defined by the exception.

The appellate court upheld the trial court's decision, emphasizing that the economic-loss rule prevents tort recovery for purely economic losses, aiming to distinguish between contract and tort law. Negligence claims are typically restricted to those involving unforeseen physical injury. Although there may be limited instances where recovery for economic losses is permitted due to a violation of a professional duty, the court noted that the existence of a special relationship, not merely a professional license, is crucial. In this case, Britly acted as a construction contractor rather than a professional service provider, and EBWS did not depend on Britly for professional services. Therefore, no special duty of care beyond the construction contract terms was established, and no exception to the economic-loss rule was applicable.

EBWS requested attorney's fees, expenses, and prejudgment interest following a jury verdict, citing entitlement under both the construction contract and Vermont's construction contracts statute. The contract specifies that the prevailing party in a breach of contract suit is entitled to reasonable attorney's fees and expenses. Vermont statute mandates such fees for the "substantially prevailing party." The trial court denied EBWS's request without explanation, which was deemed an error as EBWS properly followed procedural requirements by filing the request within the specified timeframe. The court is required to make factual findings and legal conclusions regarding such requests, and a denial without these findings constitutes an abuse of discretion when fees are mandated by law. The court's failure to determine EBWS's status as the prevailing party or substantially prevailing party necessitates a remand for appropriate findings and conclusions.

EBWS also sought prejudgment interest, claiming that its damages were ascertainable. The court similarly denied this request without explanation. Prejudgment interest is typically awarded when damages are liquidated or certain, allowing the defendant to avoid interest by paying the established amount. In cases of disputed damages, the court may award prejudgment interest at its discretion. Overall, the trial court's lack of findings for both attorney's fees and prejudgment interest led to a remand for further evaluation.

Prejudgment interest was deemed non-mandatory in this case due to significant disputes regarding the necessary repairs and their costs. EBWS asserted that the direct damages were certain; however, conflicting expert testimonies emerged during the trial. EBWS's expert recommended a complete removal and replacement of the creamery's floor and walls, estimating a cost of $38,020 and a repair duration of three weeks. Conversely, Britly's expert suggested a less extensive method involving patching with concrete mortar, projecting costs between $7,000 and $8,500 and a repair time of three to four days. This conflicting evidence led to the conclusion that the damages were not reasonably certain, citing Winey v. William E. Dailey, Inc. The court exercised its discretion to deny prejudgment interest. The award for consequential damages was reversed, and the case was remanded for the consideration of attorney's fees, while other aspects of the judgment were affirmed.