MERRIMACK, SS SUPERIOR COURT E.D. Swett, Inc. v. Town of Hooksett No. 217-2018-CV-00381 ORDER E. D. Swett, Inc. ( Swett ) entered into a contract with the Town of Hooksett, New Hampshire (the Town ) to demolish an existing bridge called the Lilac Bridge and build a new bridge on the existing pilings over the Merrimack River in Hooksett, New Hampshire (the Project ). A dispute arose, and the Town refused to pay Swett approximately $420,000 which it claims is due for work performed on the Project. Swett has brought a Complaint against the Town alleging breach of contract. The Town has answered and brought Counterclaims asserting causes of action for the Implied Covenant of Good Faith and Fair Dealing (Count II), for Quantum Meruit and Unjust Enrichment (Count III), and for Professional Negligence (Count IV). Swett moves to dismiss all three Counterclaims. 1 For the reasons stated in this Order, the Motion is GRANTED. I For purposes of a Motion to Dismiss, a court must assume the allegations, and all reasonable inferences to be taken therefrom, are true. Hilario v. Reardon, 158 N.H. 56, 1 Swett concedes that its own claim for unjust enrichment is subject to dismissal, and it will be dismissed.
61 (2008). Swett alleges in its Complaint that it performed all of its work in a good and workmanlike manner and fulfilled all conditions precedent to obtain payment. Despite repeated requests and without justification, the Town refuses to pay E. D. Swett more than $420,000 which it owes for work performed on the Project. Complaint, Introduction. Swett appended a copy of the Contract entered into by it and the Town to its Complaint. The Town admits the existence of the Contract, and therefore the Court may consider its terms in ruling upon the Motion to Dismiss. Beane v. Beane, 160 N.H. 708, 712 (2010). The Contract is, as one would expect in an enterprise of this magnitude, extremely detailed 2. The Contract appears to be a standard general contract prepared by the National Society of Professional Engineers, American Council of Engineering Companies, and American Society of Civil Engineers. The contract itself is 14 pages long, and the General Conditions are 65 pages long. Essentially, this dispute involves the Town s claim that Swett did not comply with the Contract to build a bridge over the Merrimack River which required that the three portions of the bridge-the Spans all be the same size. The specific factual allegations made by the Town are spelled out in its Counterclaim: 6. In its contract with the Town, Swett represented, among other things, that it examined carefully studied the Contract Documents and any data and reference items identified in the Contract Documents. 7. For purposes of the contract, Contract Documents include the plans and drawings of the proposed bridge. 8. The plans and drawings for the bridge showed that the three spans forming the bridge superstructure would be the same size. 2 The contract price is $ 3,345,141.00. - 2 -
9. The contract required that the work consisted of installing a three span prefabricated bridge superstructure, as shown on the plans. *** 15. Upon information and belief, shop drawings were produced by the manufacturer of the prefabricated three span bridge superstructure that showed the Northern Span of the bridge being smaller in size than the two other spans (Northern Spans shop drawings). Specifically, the shop drawings show the trusses and chords of the Northern Span being smaller in dimension and the other two spans. 16. Upon information and belief, Swett presented the Northern Span shop drawings to the engineer and certified that these drawings were consistent with the contract documents. *** 19. Swett subsequently installed in Northern Span section on the bridge. 20. Subsequently, after installation was completed, a member of the Town Council discovered the difference in the Northern Span dimensions. *** 23. The Town also submitted a request to Swett to provide the town with a change order for replacing the Northern Span with a new fabricated section that matched the other two spans. 24. Swett refused to provide the requested change order, eventually stating as a basis that the Town would use the information in the change order to sue Swett for the claimed error in installing the Northern Span. 25. To date, the Town has not received the requested change order. 26. Nevertheless, and despite installing a span that was smaller in size than that shown the Contract Documents, Swett charged the Town the same amount as initially quoted in the bid documents. Counterclaim, 6-9, 15-16, 19-20, 23-26. Counterclaim I is a claim for Breach of Contract. Counterclaim II, is entitled Breach of the Covenant of Good Faith and Fair Dealing. In this Count, after incorporating by reference the allegations contained in the prior paragraphs of the Counterclaim, the Town asserts that Swett entered into a binding contract with it to replace the Lilac Bridge in accordance with the plans and drawings provided and asserts - 3 -
that: 36. As part of the parties contract, the parties are bound to act in good faith and deal fairly with each other during the performance of the contract. 37. Through its actions of approving shop drawings that changed the design of the bridge called for in the contract documents, and failing to inform the Town of same, Swett breached the covenant of good faith and fair dealing. Counterclaim, 20. Count III of the Counterclaim asserts a claim for Quantum Meruit /Unjust Enrichment. Count III incorporates the earlier allegations of the Counterclaim and asserts: 42. By installing a bridge span that was smaller than what was called for in the Contract Documents, yet charging the Town the cost for installing replacement consistent with the contract documents, Swett received more of a benefit than it otherwise deserved. 43. Through its actions, Swett has therefore been unjustly enriched at the Town s expense, and it would be unjust to allow Swett to retain that monetary benefit under the circumstances. Counterclaim, 42-43. Count IV asserts a claim for Professional Negligence. After incorporating by reference all of the earlier factual allegations in the Counterclaim, the Counterclaim recites: 46. Swett owed a duty to the Town to adhere to the contract documents, and to exercise proper professional judgment when replacing the bridge superstructure. 47. Swett breached its duties to the Town by failing to recognize the discrepancy between the Northern span shop drawings and the Contract documents, and thus performing work on the bridge that was not in conformance with the contract and with the applicable professional practice standards governing such work. 48. Swett s breach of duty proximately caused damage to the Town. Counterclaim 46-48 II Swett moves to dismiss the Counterclaim alleging a cause of action for Breach of - 4 -
the Implied Covenant of Good faith and Fair Dealing. In every agreement there is an implied covenant of the parties will act in good faith and fairly with one another.. Livingston v. 18 Mile Point Drive, Ltd., 158 N.H. 619, 624 (2009). But the implied covenant of good faith and fair dealing is not a separate cause of action; rather it is a description of the obligations the common law imposes on parties to a contract. Breach of the implied covenant of good faith and fair dealing is, like breach of an express covenant, simply a breach of the contract. The seminal distillation of the doctrine from traditional common-law contract law appears in Judge Souter s opinion in Centronics Corporation v. Genicom Corporation, 132 N.H. 133 (1989). There is not merely one rule of implied good-faith duty in New Hampshire s law of contract, but a series of doctrines, each of them speaking in terms of an obligation of good faith by serving markedly different functions. Id. at 139. An implied duty exists in three distinct categories of contract cases: those dealing with standards of contract and contract formation, with termination of at will employment contracts, and with limits on discretion in contractual performance. 3 Id. Only the third category of the could possibly be applicable here: under an agreement that appears by word or silence to invest one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement s value, the parties intent to be bound by an enforceable contract raises an 3 The limited applicability of the doctrine to the ordinary contract case is apparent when fundamental principles of New Hampshire contract law are examined. New Hampshire follows the common-law view of Oliver Wendell Holmes that there is no moral quality to a breach of a contract and that because a contracting party always has the lawful alternative between performance and the payment of damages, the contracting parties rendition of the former and forbearance to choose the latter would be consideration for return promise. Frye v. Hubbell, 74 N.H. 358, 374 (1907); see CORBIN ON CONTRACTS, (Rev. Ed. 1995) 7.12 p. 394-95. CORBIN ON CONTRACTS (Rev. Ed. 1995) 7.12. p. 394-95. - 5 -
implied obligation of good faith to observe reasonable limits in exercising that discretion, consistent with the parties purpose or purposes in contracting. Id. The Town strains to create an implied duty where an explicit duty already exists: 5. Contrary to Plaintiffs argument, it is the unreasonable discretion that the plaintiff exercised in fabricating and installing the North span that is at issue. Stated another way, the Plaintiff s actions in approving and installing a bridge span that did not conform with the approved design in the contract was inconsistent with the reasonable and justified expectations of the Town and was otherwise inconsistent with the standards of reasonableness. (emphasis supplied). Def. s Obj. to Mot. To Dismiss Count II, 5. It is doubtless true that approving an installing a bridge span that did not conform with the approved design the contract would be inconsistent with the reasonable and justified expectations of the Town. But there is no reasonable argument to be made that the Contract between the parties gave Swett discretion to comply or not comply with the contract terms. If it failed to do so, Swett obviously breached the express terms of the Contract; no implied duty is involved. Swett s Motion to Dismiss the Town s Claim For Breach of The Implied Covenant Of Good Faith And Fair Dealing must be GRANTED. III Swett also moves to dismiss the Unjust Enrichment/Restitution 4 claims against it because it asserts that there is a valid and enforceable contract between the parties that governs the Project. Ironically, it has brought a Counterclaim for Unjust Enrichment/Restitution but proceeded at oral argument on these Motions that if the Unjust Enrichment/Restitution Counterclaim against it is dismissed, Count III of the Complaint is brought, alleging Unjust Enrichment, must be dismissed as well. Unjust Enrichment is an equitable remedy that is available when an individual 4 The parties refer to restitution and quantum meruit interchangeably in the papers. - 6 -
receives a benefit which would be unconscionable for him to retain. Turner v. Shared Towers VA, LLC, 167 N.H. 196, 202 (2014). It is not a boundless doctrine, but is, instead narrower, more predictable and more objectively determined than the implications of the word unjust enrichment. Id.; Axenics, Inc. v. Turner Construction Co., 164 N.H. 659, 669 (2013). One general limitation is that unjust enrichment may not supplant the terms of an agreement. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT 2 (2011); Turner v. Shared Towers VA, LLC, 167 N.H. at 202; Axenics, Inc. v. Turner Construction Co., 164 N.H. at 669. Swett s argument is straightforward; it argues that there is a binding and enforceable contract between the parties that governs the Project and that therefore the unjust enrichment doctrine is inapplicable. Pltf. s Mot. to Dismiss, 3. The Town recognizes the general rule that where a controlling contract addresses the subject matter of a dispute no unjust enrichment claim can exist, but argues that the its unjust enrichment claim regarding whether the Northern Span of the bridge was to be built to the same dimension as the other two spans would be a viable as an alternative remedy in the event the Court rules that the governing contract is silent on the issue of the dimensions of the three bridge spans. Obj. to Mot. to Dismiss, 4. The Town provides scant authority for this proposition. It cites to Ventura v. Titan Sports, Inc., 65 F.3d 725 (8 th Cir. 1995) in which the Eighth Circuit applied Minnesota law which, like New Hampshire law, provides that where an express contract exists, there can be no implied in law contract with respect to the same subject matter. Reese Design v. I-94 Highway 61 Eastview Center Partnership, 428 N.W.2d 441, 446 (Mo. App. 1988). In that case, the Eighth Circuit merely held that a contract between the plaintiff and the defendant - 7 -
for royalties from videotapes of his performance as a wrestler did not bar an unjust enrichment claim for payment of royalties for videotapes of his performance as a commentator. Ventura v. Titan Sports, Inc., 65 F.3d at 731. The District Court specifically found that the parties had no agreement concerning the payment of royalties for videotape use of the wrestler s performance as a commentator. Equally unavailing is the other case cited by the Town, Herlihy v. Cushman & Wakefield of Massachusetts, Inc., 76 Mass. App. Ct. Ct. 1128, 925 N.E.2d 574 (2010), an unreported decision of the Massachusetts Appeals Court. Massachusetts, like New Hampshire will not permit recovery in quantum meruit based on an implied or quasi contract where an express contract exists. Maddaloni v. Western Mass. Bus Lines, Inc., 386 Mass. 877, 883, 438 N.E.2d 351 (1982). In Herlihy the plaintiff worked as a salesperson for Cushman & Wakefield. He signed an employment contract which provided that Commissions would be split between the agency and salespersons, but that salespersons could agree among themselves to share commissions, and it was pursuant to such an agreement that the plaintiff actually was compensated. The group of Cushman & Wakefield salespersons with whom Herlihy split commissions was known as the Griffin Team. One Robert Griffin, in the exercise of his sole discretion, determined what compensation each member of the Griffin team would receive. Plaintiff was terminated, and sought compensation. The trial court found that the employment contract did not address the plaintiff Herlihy s individual pay because his compensation was left to the whim of one individual s discretion, and allowed a quantum meruit case to proceed. Id. at * 5. The contrast with the instant case is stark. Here, there can be no doubt that the - 8 -
contract between the parties covered all three spans of the bridge- obviously, if one span were not included there would not be a bridge. This is evidenced by the language of the Counterclaim itself: [b]y installing a bridge span that was smaller than what was called for in the contract documents, but charging the Town the cost for installing replacement consistent with the contract documents, Swett received more of a benefit than it otherwise deserved. Counterclaim, 42. The language of the RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT 2 (2011) is particularly apposite: a valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment. As Comment (c) notes: Contract is superior to restitution as a means of regulating voluntary transfers because it eliminates, or minimizes, the fundamental difficulty of valuation. Considerations of both justice and efficiency require that private transfers be made pursuant to contract whenever reasonably possible and that the party s own definition of their respective obligations-assuming the validity of their agreement by all pertinent tests, take precedence over the obligations of the law would impose in the absence of agreement. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT 2 (2011), Comment c, quoted in Turner v. Shared Towers VA, LLC, 167 N.H. at 202. The Motion to Dismiss Counterclaim III must be GRANTED. III Counterclaim IV is captioned Professional Negligence. The Town incorporates all of its prior allegations and then asserts that Swett violated an independent duty of professional care to it. Counterclaims, 47-48. The Town does not reference any explicit terms of the Contract requiring Swett to design the bridge and implicitly argues that the duty it asserts arises apart from the contract. The Town recognizes that there is generally no liability in tort for failing to perform - 9 -
the terms of a contract. PK s Landscaping, Inc. v. New England Telephone Co., 128 N.H. 753, 757 (1986); Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 613 (1978). But it argues that its claim can survive Swett s Motion to Dismiss because : Unlike its breach of contract claim, the Town is not alleging that the Defendant negligently failed to follow certain plans or diagrams when constructing the bridgea claim that is based upon the contract itself. Rather, the purpose of Count IV is to allege that the Defendant had an independent duty as a professional to apprise the Town of the fact that the North Span of the bridge would be different in dimension and the other spans, irrespective of whether the contract itself called for the bridge spans to be uniform in size (which the Town maintains it does in its alternative contract counts). In other words, if it were ultimately determined that the applicable contract did not call for the bridge spans to be the same dimension (which the Defendant alleges), the Town would argue that the Defendant is nonetheless liable for installing the deficient span. (Emphasis supplied). Def. s Obj. to Mot. to Dismiss, 3 The Town alleges no facts from which a trier of fact could find that Swett undertook design obligations which were different from the obligations in the detailed contract between the parties. The Court need not accept statements which are mere conclusions on a Motion to Dismiss. Jay Edwards, Inc. v. Baker, 131 N.H. 41, 44 (1987). And the Town provides no authority for the proposition that it may make a claim that claim that that the Defendant had an independent duty as a professional to apprise the Town of the fact that the north span of the bridge would be different in dimension and the other spans, irrespective of whether the contract itself called for the bridge spans to be uniform in size. Counterclaim IV (Emphasis supplied). Swett also argues that this claim runs afoul of the economic loss doctrine. The economic loss doctrine is a judicially created remedies principle that operates generally to preclude contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship. Plourde Sand and Gravel v. - 10 -
JGI Eastern, Inc., 154 N.H. 791, 794 (2007). The doctrine is based upon an understanding that contract law and the law of warranty, in particular, is better suited than tort law for dealing with purely commercial loss in the commercial arena. Id. If a contracting party is permitted to sue in tort when a transaction does not work out as expected, that party is in effect rewriting the agreement to obtain a benefit that was not part of the bargain. Id., quoting Tietsworth v. Harley-Davidson, Inc., 270 Wis. 2d 146, 677 N.W.2d 233, 241 (2004). It is true that where a duty lies outside the terms of the contract, a plaintiff may recover economic loss in tort against a defendant contracting party. This principle is the so-called professional negligence doctrine, which provides that the economic loss rule will not apply against design professionals where there is a special relationship be between the design professional and the contractor. Plourde Sand and Gravel v. JGI Eastern, Inc., 154 N.H. at 796. This narrow exception to the economic loss doctrine only applies in circumstances where the contracting party expects an independent tort duty would exist the New Hampshire Supreme Court has likened the duty owed in such a relationship to that owed by a promisor to an intended third-party beneficiary: a third party beneficiary relationship exists if the contract is so expressed as to give the promisor reason to know that a benefit to the third party is contemplated by the promisee as one of the motivating causes of his making the contract. Id., quoting Spherex, Inc. v. Alexander Grant & Co., 122 N.H. 898, 903 (1982). The economic loss doctrine generally involves litigation among persons who have no contractual relationship with the alleged tortfeasor. In 2011, noting the lack of consensus on the issue, the New Hampshire Supreme Court held that the economic loss - 11 -
doctrine is applicable to a claim between two contracting parties. Wyle v. Lees, 162 N.H. 406, 411 (2011). But the narrow exception to nonliability for tort in such cases exists where there is a misrepresentation which is an inducement of the contract so that the claim is not duplicitous of the breach of contract claim. Wyle v. Lees, 162 N.H. at 411. Were the exception not narrow, a court could be asked in a routine breach of contract case to rewrite the agreement to make it more advantageous to one side or the other. But in New Hampshire, where a negligence claim is based only on breach of a contractual duty the law of contract rightly does not punish the breaching party but limits the breaching party s liability to damages that naturally flow from the breach. Id., quoting United International Holdings v. Wharf (Holdings), 210 F.3d 1207, 1226-27 (10 th Cir. 2000), aff d 532 U.S. 588 (2001). Swett and its counterparty the Town have allocated the risks and benefit of performance in their contract the Court upsets that allegation when it imposes tort liability on the defendant. Wyle v. Lees, 162 N.H. at 411. The Motion to Dismiss must be GRANTED. IV This case is a straightforward claim of breach of contract by two contracting parties. If Swett complied with the terms of the agreement it made with the Town, it must be paid in the contract price. It did not, and breached the Contract it need not be paid the contract price and may be liable to the Town for damages proximately caused by its breach. But having defined their relationship by contract, the Court cannot impose a new agreement on the parties by imposing duties for which they did not bargain. Swett s Motion to Dismiss the Counterclaim II for Breach of the Covenant of Good - 12 -
Faith and Fair Dealing, Counterclaim III for Unjust Enrichment/Restitution and Counterclaim IV for claim for Professional Negligence must be GRANTED. Count III of Swett s Complaint for Unjust Enrichment/Restitution and must be DISMISSED as well. SO ORDERED 12/31/18 s/richard B. McNamara DATE Richard B. McNamara, Presiding Justice RBM/ - 13 -