Opinion
Civil Action No. 01-10385-RWZ.
November 27, 2001
MEMORANDUM OF DECISION
Plaintiffs, Brian and Leslie Gavett (collectively the "Gavetts") bring this action against Defendant Roto-Rooter Services Company ("Roto-Rooter") to recover for breach of contract and negligence, based on a Title V inspection of Plaintiffs' sewage disposal system. Defendant filed a motion to dismiss both claims, asserting that the complaint failed to set forth any evidence to support a viable cause of action.
Plaintiffs' complaint states the following. On April 3, 1997, they purchased a single family residence from the Massachusetts Department of Housing and Urban Development ("HUD"). Prior to that date, Defendant had inspected the sewage system under a contract with HUD and issued a Title V certification, under which the company certified that the system was in compliance with the state's sanitary code. In April of 2000, Plaintiffs decided to sell the property. In accordance with Massachusetts law, they had a new Title V inspection done of the system formerly inspected by Defendant. The new inspector determined that the system did not comply with Title V and that it was missing a "T" pipe leading to the leaching pipe. According to the inspector, the absence of this component caused all of the refuse to pour into the leaching field, resulting in its ultimate destruction. Plaintiffs claim that the system could not have been in compliance with Massachusetts law when Defendant issued its certification. Therefore, Defendant's failure to notify them of the system's noncompliance in 1997 caused Plaintiffs to suffer damages.
Defendant's motion to dismiss is based on two false assertions: (1) that Plaintiffs could not possibly have been intended third-party beneficiaries under the contract between Defendant and HUD; and (2) even if Plaintiffs were intended third-party beneficiaries, their claims are barred by the economic loss doctrine.
I. Third-party Beneficiary Status
Defendant contends that in order for Plaintiffs to be considered third party beneficiaries they must show (1) that a contract indeed existed between Defendant and HUD, and (2) that the contract identified Plaintiffs as intended beneficiaries. First, Plaintiffs need not produce a contract to support their claims at this stage of the case. Rather, the court bases its decision to grant or deny a motion to dismiss on the complaint and the complaint alone. Second, the current standard used by Massachusetts courts to ascertain whether a service provider is liable to a person not a party to the contract, runs contrary to Defendant's argument.
The 1998 Massachusetts Supreme Judicial Court decision, Nycal Corporation v. KPMG Peat Marwick LLP, 688 N.E.2d 1368 (Mass. 1998) adopted a standard of third-party liability based on the Restatement (Second) of Torts § 552 (1977), a middle ground between the broad foreseeability test and the strict near-privity rule. Section 552 provides, in pertinent part:
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
The comment to section 522 further states:
[i]t is enough that the maker of the representation intends it to reach and influence either a particular person or persons, known to him, or a group or class of persons, distinct from the much larger class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it . . . It is sufficient, in other words, insofar as the plaintiff's identity is concerned, that the maker supplies the information for repetition to a certain group or class and that plaintiff proves to be one of them, even though the maker never had heard of him by name when the information was given.
Based on these principles, the Nycal court held that the accounting firm's liability to parties outside the contract was limited to those people who the firm knew were part of the unnamed limited group of people who would rely on their report. Nycal, 688 N.E.2d at 1372. Similarly, in Stone/Congress v. Town of Andover, 1997 WL 11737 (Mass.Super.), the court held that although the defendant architect did not know the specific identity of the party relying on his representations, "in the usual chronology of drafting, bidding and contracting, an architect does reasonably foresee that a general contractor will base its bid on the architect's plans and upon any deficiencies in those plans." Id. at *3. Plaintiffs have a credible argument that the services provided by a sewer inspection company should be held to the same standard. In the "usual chronology" of sewer inspection, the inspection company knows that its services are providing information to a group of people who are potential purchasers of the property in question. More importantly, it knows that a property must comply with Title V of the State Sanitary Code as a condition of sale. Therefore, it is not only reasonably foreseeable that a person from the group of potential purchasers will rely on the sewer inspection report — it is virtually certain. That Defendant did not know the specific name of the purchasers at the time of the sewage inspection does not mitigate against a finding of third-party liability.
Defendant's reliance on Tasco Construction, Inc. v. Town of Winchendon, No. 91-0308-C, slip. op. (Middlesex Super. Ct. Feb. 11, 1994) to support its contention that Plaintiff was merely an incidental beneficiary is misplaced. Contrary to Defendant's assertions at oral argument, the Tasco court expressly avoided resting its decision on the fact that the defendant engineer did not know the plaintiff's identity as the contractor at the time it provided the allegedly misleading plans. Rather, the court rested its decision on a fact not present here: the contractor in Tasco had agreed to make its bid "in sole reliance upon its own investigations regarding the amounts of materials and labor . . . required." Id. at 6-7. Plaintiffs made no such representation to Defendant in the instant case.
II. The Economic Loss Doctrine
In the context of ordinary negligence actions, the Supreme Judicial Court has held that "purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury and property damage." Cummings v. HPG Int'l, Inc., 244 F.3d 16, 24 (1st Cir. 2001) (citing FMR Corp. v. Boston Edison Co., 613 N.E.2d 902, 903 (Mass. 1993)). Massachusetts case law, however, has carved out an exception to the economic loss doctrine for negligent misrepresentation claims stemming from the provision of services. Id.; see Danca v. Taunton Sav. Bank, 429 N.E.2d 1129, 1134 (Mass. 1982) (misrepresentations in mortgage documents); Craig v. Everett M. Brooks, 222 N.E.2d 752 (Mass. 1967) (negligent "form of representation" involving engineer's placement of survey stakes); Stone/Congress v. Town of Andover, 1997 WL 11737, at *3-4 (Mass.Super. 1997) (misrepresentations in architect's plans). Although the complaint is not artfully drawn, I interpret Plaintiffs general negligence claim to include negligent misrepresentation. Because Massachusetts law clearly supports claims based on negligent misrepresentations made by a service provider, such as a sewer inspection company, Plaintiffs have set forth facts upon which relief can be granted. Accordingly, Defendant's motion to dismiss is denied.