Continued revision of the economic loss rule: statutory causes of action not barred.

AuthorValori, Raymond W.
PositionFlorida

Comptech International, Inc. v. Milam Commerce Park, Ltd.

Undoubtedly, no modern doctrine has been the subject of more debate, discussion, and commentary than the economic loss rule. The Florida Bar Journal alone has published numerous articles on this subject.[1] The ELR has often been applied in ways that delighted defendants and bewildered plaintiffs. Recently, however, the Florida Supreme Court expressly sought to provide order and reason to a doctrine that many perceive to be out of control.

The first such pronouncement came earlier this year in Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999).[2] In Moransais, the Florida Supreme Court expressed concerns over the expansion of the ELR beyond the product liability context. The Florida Supreme Court held that the ELR does not bar tort claims against professionals. The court continued its tailoring of the ELR in Comptech Int'l., Inc. v. Milam Commerce Park, Ltd., 1999 WL 983857 (Fla. 1999). The Comptech decision further curtails the application of the ELR by prohibiting its application to statutory causes of action. Comptech also further defines the general principles of the ELR and the "other property" exception. This article discusses the Comptech case and its implications.

The Facts of Comptech

Comptech leased warehouse space from Milam.[3] The parties entered into a renewal lease that included an obligation for Milam to renovate and expand the leased space. Milam failed to obtain proper permits and its construction contractor performed the work in a manner that violated the building code.[4] As a result of the foregoing, computers that Comptech stored in the space were damaged. Comptech sued Milam for, inter alia, "negligent selection of a contractor," "negligent construction," and "violation of section 553.84."[5] Comptech, 1999 WL 983857 at *3. The Third District Court of Appeal held that by virtue of the lease agreement, Comptech's claims were barred by the economic loss rule and its remedy, if any, was in contract.

Comptech was accepted by the Florida Supreme Court under conflict jurisdiction with Stallings v. Kenney Elec., Inc., 710 So. 2d 195 (Fla. 5th DCA 1998). In Stallings, homeowners brought suit, also under F.S. [sections] 553.84, against an electrical subcontractor contending the contractor's wiring work, which violated applicable codes, caused a fire. The Fifth District Court of Appeal held that such claims were not barred by the ELR.

The Rule Prior to Moransais and Comptech

In order to understand the recent changes to the ELR a review of its previous application is essential. Prior to Moransais and Comptech the ELR had taken three basic forms. They were well described by Judge Altenbernd in Woodson v. Martin, 663 So. 2d 1327 (Fla. 2d DCA 1995), quashed, 685 So. 2d 1240 (Fla. 1996):

First, there is the products liability economic' loss rule: If the defendant's product physically damages only itself, causing additional economic loss, no recovery is permitted in "tort."

Second, there is the contract economic loss rule: If the parties have entered into a contract, the obligations of the contract cannot be relied upon to establish a cause of action in tort for the recovery of purely economic damages. This rule is best exemplified by AFM Corp. v. Southern Bell Telephone & Telegraph Co., 515 So. 2d 180 (Fla. 1987). If the plaintiff sues in negligence under these circumstances, the standard of care alleged must be based upon some broader societal interest and not merely on the obligations between the parties established in their contract. There must be a separate, "independent tort." Id. at 181.

Finally, there is the negligence economic loss rule: Common law negligence will not be expanded to protect economic interests in the absence of personal injury or property damage unless the judiciary is convinced that a strong public policy requires an expansion of the common law to protect specific economic interests.

Id. at 1331 (Altenbernd, J., dissenting).

The product liability ELR is the origin of the doctrine.[6] It is justified by reasoning that where a product fails and damages only itself, commercial parties are free to bargain for warranty protection.

It is the second form of the ELR that has often been implicated with regard to statutory causes of action. The proponent of the ELR argues that because the parties have a contract, the only remedy that may be found is in the contract. Prior to Comptech the district courts approached the question of how the ELR interacts with statutorily created causes of action with varied reasoning. Some courts attempted to apply the court's holding in HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238 (Fla. 1996), which concluded fraudulent inducement claims were not barred by the ELR because the fraud constituted an independent tort. Thus, the ELR was applied where the statutory cause of action could be described as a "statutory tort" and the action was based upon the same elements as the breach of contract.[7] Other courts simply applied the ELR to bar statutory causes of action if such claims were not "independent of the breach of contract."[8] Other courts refused to apply the ELR to statutory causes of action.[9]

The third form of the ELR is perhaps the most amorphous. In the past it was often applied to bar tort claims against professionals.[10]

Statutory Causes of Action Not Barred by the Rule

The Florida Supreme Court's opinion in Comptech first addresses the issue of how the ELR...

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