Wade Clark Mulcahy LLP

<p style="text-align: justify;">The United States District Court for the Eastern District of Pennsylvania recently denied a company’s attempt at dismissal from an insurance company’s lawsuit reclaiming damages.  In<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2019/08/National-Fire-Insurance-Co.-of-Hartford-v.-Johnson-Controls-1.pdf">National Fire Insurance Co. of Hartford v. Johnson Controls</a></em>, the company moved to dismiss by attempting to rely on work orders as governing contracts and avoiding allegations rooted in pure tort law.</p>
<p style="text-align: justify;">In November of 2018, National Fire sued Johnson Controls claiming that it should be liable for up to $10.6 million in damages paid out in the aftermath of a fatal fire.  The fire occurred at Barclay Friends, an assisted living community for the elderly, and killed four of its residents.  As a result, an onslaught of lawsuits filed on behalf of those victims followed.  National Fire’s complaint alleges that Johnson Controls was at the facility during May of 2017 in order to replace a leaking valve in the sprinklers.  However, National Fire claims Johnson Controls completed the job without later reopening all of the valves within the system.  As such, water was unable to get through the sprinklers in order to help extinguish the fire.</p>
<p style="text-align: justify;">In response, Johnson Controls argued that the work it conducted was governed by contract and it could not be exposed to pure tort claims from National Fire.  However, the Court stated that Johnson Controls would not be exempt under such a theory.  Specifically, the Court stated that the documents relied upon by Johnson Controls did not constitute a contract and that, even if they did, did not relate to conduct alleged by National Fire.  The documents relied upon Johnson Controls consisted of works orders performed by the company.</p>
<p style="text-align: justify;">As background, back in 2014, Barclay Friends and SimplexGrinnell entered into a contract that governed its provision of fire protection system monitoring services for the facility.  On December 31, 2016, the contract terminated, and a new agreement was not negotiated.  By this point, SimplexGrinnell had merged with Johnson Controls and the company continued to perform fire protection system services pursuant to “individual and separate transactions.”</p>
<p style="text-align: justify;">In May of 2017, Johnson Controls replaced a leaking “OS&amp;Y” valve in the sprinkler system and allegedly failed to return the valve tamper switch to its full open position.  In June and August of 2017, Johnson Controls inspected the fire sprinkler system and confirmed that the valves were in the appropriate positions.  However, during the fire that took place on November 16, 2017, the sprinklers allegedly failed to operate correctly and ultimately assist in the fire extinguishment.</p>
<p style="text-align: justify;">In disagreeing with Johnson Controls, the Court addressed its two arguments including (1) the gist of action doctrine and (2) specificity of the complaint.  Under the gist of action doctrine, claims are barred for allegedly tortious conduct where the gist of the conduct sounds in contract rather than tort.  In order to determine whether a claim is barred, the court “must first assess the alleged breach of the ‘social duty imposed by the law of torts’ (i.e., the fraud),” and compare that breach to the defendant’s contractual obligations under the relevant agreements.  <em>See SodexoMAGIC, LLC v. Drexel Univ.</em>, 333 F. Supp. 3d 426, 454 (E.D. Pa. 2018).  In the instant matter, the Court determined it was reasonable to conclude that the work orders and service requests relied upon by Johnson Controls were not contracts for the services performed because Plaintiff’s insureds did not accept the terms outlined in the documents.  Furthermore, the Court stated that even if discovery revealed facts showing that the terms and conditions of the work orders and service requests governed the parties’ transactions, the duties in those documents are not the same as the duties allegedly breached within Plaintiff’s complaint.  Rather, the duties allegedly breached within Plaintiff’s complaint pertain to replacing the subject valve in a workmanly manner, which is a tort.</p>
<p style="text-align: justify;">Surrounding the specificity of the complaint, Johnson Controls argued that Plaintiff’s complaint should be dismissed due to misrepresentation and fraud.  However, the Court denied both of these arguments.  Specifically, the Court denied Johnson Controls’ misrepresentation and fraud arguments because Johnson Controls, itself, included documents memorializing the services it provided within its own Motion to Dismiss.  As a result, the Court determined that it was not plausible that Johnson Controls was unaware of the misconduct with which it was charged.  Therefore, the attached documents satisfied the heightened standard required for Plaintiff’s misrepresentation and fraud claims.</p>
<p style="text-align: justify;">Thanks to Zhanna Dubinsky for her contribution to this post. Please email <a href="mailto:VPinto@wcmlaw.com">Vito A. Pinto</a> with any questions.</p>