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Hanover Insurance Group v. iCarpets, Inc.

United States District Court, D. Colorado

December 21, 2017

HANOVER INSURANCE GROUP, a subrogee of KTB Inc., doing business as Navis Pack & Ship Center and CINCINNATI INSURANCE COMPANY, as subrogee of Window Technology Inc., doing business as Wintech, Wintech Real Estate, LLC, Plaintiff,
v.
ICARPETS, INC., Defendant, VEHICLE PROJECTS, INC., Plaintiff-Intervenor.

          ORDER ON PENDING MOTIONS

          R. BROOKE JACKSON, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on four motions: iCarpets' motions for partial summary judgment on Vehicle Projects' breach of contract claim and on the measure of damages [ECF Nos. 26, 27]; and Vehicle Projects' motions for summary judgment and for sanctions [ECF Nos. 28, 29]. For the reasons stated herein, the Court GRANTS iCarpets' first motion for partial summary judgment on Vehicle Projects' breach of contract claim; GRANTS in part and DENIES in part iCarpets' motion for partial judgment with respect to the measure of damages; GRANTS in part and DENIES in part Vehicle Projects' motion for summary judgment with respect to liability and causation, and GRANTS in part and DENIES in part Vehicle Projects' motion for sanctions.

         BACKGROUND

         The plaintiffs, Hanover Insurance Group and Cincinnati Insurance Company, are the subrogees of Navis Pack & Ship Center and Wintech, Wintech Real Estate, LLC, respectively. Both Navis and Wintech leased units in a commercial property in Denver, Colorado. iCarpets was also a tenant in the commercial property. It stored carpets in its warehouse unit adjacent to Navis' unit. In December 2014 a fire originating in iCarpets' unit damaged both Navis' and Wintech's property. On Navis' and Wintech's behalf, Hanover and Cincinnati brought this suit alleging claims of negligence and breach of contract against iCarpets. Hanover and Cincinnati brought their breach of contract claims as third-party beneficiaries of iCarpets' lease agreement with the commercial landlord, Revere Limited Partnership I, LLLP.

         Plaintiff-Intervenor Vehicle Projects also alleges that its property was damaged in the December 2014 fire. Vehicle Projects was subleasing space from Navis in the commercial property at the time of the fire and suffered property damage to the specialized equipment it was storing in the unit. Vehicle Projects' motion to intervene was granted (ECF No. 12), and it filed its complaint in this suit in September 2016. ECF No. 14. Vehicle Projects' complaint, like that of Hanover and Cincinnati, alleges claims of negligence and breach of contract as a third-party beneficiary of iCarpets' lease agreement with Revere. Id. at 4.

         STANDARD OF REVIEW

         The Court may grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). An issue of material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         ANALYSIS

         A. iCarpets' Motion for Partial Summary Judgment on Vehicle Projects' Breach of Contract Claim [ECF No. 26].

         As noted, Hanover, Cincinnati, and Vehicle Projects all allege breach of contract claims as third-party beneficiaries of iCarpets' lease agreement with Revere. See ECF No. 1 at 7, 9; ECF No. 14 at 4. A third-party beneficiary may enforce a contract only if the parties to that contract intended to confer a benefit on the third party when contracting; it is not enough that some benefit incidental to the performance of the contract may accrue to the third party.” Everett v. Dickinson & Co., 929 P.2d 10, 12 (Colo. App., 1996) (citing McPheeters v. McGinn, Smith & Co., 953 F.2d 771 (2d Cir. 1992)). Courts assessing parties' intent to confer benefits on third parties consider the contractual provisions “together with the circumstances surrounding the execution of the agreement.” Id. at 13. A “third party beneficiary need not be named in a contract in order to sue under the contract.” Ratner v. MRC P'ship, 156 F.2d 1244, 1998 WL 567972, at *6, (10th Cir. 1998) (unpublished).

         In this case, the plaintiffs and plaintiff-intervenor focus on the requirement in iCarpets' lease agreement that iCarpets “keep and maintain the leased premises in good condition and repair, ” “not take actions to endanger other tenants in the subject property, ” and “keep the electrical system in working order.” ECF No. 1 at 9; see also ECF No. 26-2 at 2 (“Tenant shall not . . . take any other action which would constitute a nuisance or would disturb or endanger any other tenants in the building.”). iCarpets moves for summary judgment on Vehicle Projects' breach of contract claim, alleging that as a sublessee of space in Navis' unit, Vehicle Projects does not have standing to bring a breach of contract claim against iCarpets as a third-party beneficiary. ECF No. 26 at 6.

         iCarpets' argument relies on both its lease agreement with Revere and Vehicle Projects' sublease agreement with Navis, which it argues preclude Vehicle Projects' third-party beneficiary claims. ECF No. 26 at 2-4.[1] iCarpets' argument that the sublease agreement between Navis and Vehicle Projects waives claims by Vehicle Projects against Navis is inapposite. Id. at 4-5, 7. Vehicle Projects is circumventing its relationship with Navis and suing iCarpets in its own right as a third-party beneficiary, relying only on iCarpets' lease agreement with Revere. I am similarly not persuaded by iCarpets' arguments that sublessees may not be third-party beneficiaries. See ECF No. 26 at 6. The lease agreement's prohibition on sublessees without Revere's approval does not support iCarpets' contention that Vehicle Projects-or any other sublessees, for that matter-were not contemplated by the lease agreement or intended to benefit thereby. Instead, because this provision in fact anticipates sublessees, it would not be unreasonable for the parties to have intended to extend to sublessees the same protections that tenants enjoy. See, e.g., ECF No. 26-2 at 2, 3.

         However, I am persuaded by iCarpets' argument that the waiver clause in iCarpets' lease agreement with Revere precludes Vehicle Projects' third-party claims. Id. at 7. Under “traditional principles of contract interpretation . . . third-party beneficiaries generally have no greater rights in a contract than does the promisee.” United Steelworkers of Am. v. Rawson, 495 U.S. 362, 375 (1990). In this case the “Waiver of Subrogation” section of the lease agreement provides that “Landlord and Tenant hereby release each other from any loss or damage to property caused by fire or any other perils insured through or under them by way of subrogation.” Id. at 7. As a result, even if Vehicle Projects were a third-party beneficiary to the contract, its contractual rights against iCarpets for fire-related damage would be limited because Revere's contractual rights against iCarpets are limited by the waiver provision. Because Vehicle Projects may not assert a breach of contract claim against iCarpets for the damage caused by the fire, summary judgment is appropriate on this claim.

         In reaching this conclusion, I note that I am not persuaded by Vehicle Projects' reference to iCarpets' expert's testimony that iCarpets should have fixed or repaired the electrical system “for the overall safety of the occupants of the building.” ECF No. 36 at 2 (citing ECF No. 37 at 54:3-9). The expert's opinion about iCarpets' obligation does not illuminate iCarpets' or Revere's intent with respect to third parties in establishing the lease agreement. Ultimately, because Vehicle Projects' contractual rights with respect to the damage caused by the fire may not exceed those of the parties to the lease agreement, iCarpets' motion for summary judgment on Vehicle Projects' breach of contract claim is GRANTED.

         B. iCarpets' Motion for Partial Summary Judgment on Vehicle Projects' Measure of Damages [ECF No. 27].

         In iCarpets' second motion for partial summary judgment it seeks a determination of law as to the appropriate measure of Vehicle Projects' damages. ECF No. 27 at 1. Vehicle Projects' alleged damages are based on the damage caused by the fire to specialized equipment it was storing in Navis' unit at the time of the fire. Id. at 2. Vehicle Projects was storing the components of a fuel cell locomotive engine it had developed and built for Rustenburg Platinum Mines Limited pursuant to a Development Agreement between Rustenburg and Vehicle Projects. Id. iCarpets argues that the value of this lost equipment should be measured in terms of the diminution of its market value, which can be determined using the contract price contained in the Development Agreement. Id. According to the terms of this contract, the cost to build four locomotive “units” and perform related services would be $500, 000. Id. at 3. As such, iCarpets argues that the market value of the single locomotive engine (or “unit”) damaged by the fire can be determined by the contract price as one-fourth of $500, 000, or $150, 000 [sic].[2] ECF No. 27 at 4-5.

         As a matter of law, iCarpets is correct that the appropriate measure of damages is the property's market value. Though iCarpets finds support for this contention from real property cases (see, e.g., Bd. of Cnty. Comm'rs v. Slovek, 723 P.2d 1309, 1314 (Colo. 1986)), the same rule holds for cases involving personal property like the equipment at issue here. In Colorado, “[g]enerally, the measure of damages for injury to personal property is the difference between its market value immediately before and after the injury.” Biosera, Inc. v. Forma Scientific, Inc., 941 P.2d 284, 286 (Colo.App. 1996).

         While Vehicle Projects does not dispute that market value is the appropriate measure of damages, it does dispute iCarpets' attempt to set the amount of damages as a matter of law, noting that the amount of damages is a question of fact for trial. ECF No. 35 at 1-2 (citing Ryan v. Mineral Cnty. High Sch. Dist., 146 P. 792, 795 (Colo.App. 1915)). Vehicle Projects argues that by asking the Court to enter judgment on the amount of damages at $150, 000, iCarpets is conflating the question of law about the measure of damages with a disputed question of fact about the amount. Id.

         I agree with Vehicle Projects that iCarpets' attempt to have the Court determine the market value of the equipment destroyed is inappropriate. iCarpets has failed to show the absence of a genuine issue of fact with respect to its proffered figure of $150, 000. Instead, Vehicle Projects has established a genuine dispute over the damages amount, noting that the “cost to build” four locomotive units, as expressed in the Development Agreement, does not necessarily convey the value of each unit. Id. at 6. As Vehicle Projects' president and owner, Dr. Miller, points out, the company would not have sold the unit for $125, 000 on the open market, as such a price would not reflect the unit's value. ECF No. 35-1 at 4. In other words, Vehicle Projects rejects iCarpets' reliance on the contract price of the unit as opposed to the price it would fetch on the open market. Vehicle Projects instead contends that the real value of a single unit takes into account the previous work that went into developing the technology, despite the fact that Vehicle Projects' client paid these costs according to the terms of the Development Agreement. Id. at 5.[3] Moreover, I note that while “the contract price-the product of arms length negotiations between sophisticated market participants” has been deemed “to be an excellent determination of market value, ” it is not the only determination of market value, and does not preclude alternative calculations. Eastman Kodak Co. v. Trans Western Exp., Ltd., 765 F.Supp. 1484, 1486 (D. Colo. 1991).

         Additionally, Dr. Miller's affidavit provides two plausible alternative calculations of the value of the equipment destroyed in the December 2014 fire. ECF No. 35-1 at 3. The first, which results in a value of $372, 800 per unit, involves accounting for the amortized cost to develop the product, the cost to manufacture it, and the profit per unit. Id. The second method accounts for the cost of materials for each unit, and it results in a unit value of $269, 051. Id. iCarpets disputes Vehicle Projects' reliance on Dr. Miller's opinions, as he was not designated as an expert witness, and his opinions were not disclosed or supported by facts or data. ECF No. 39 at 2. It is true that Dr. Miller has not been designated as an expert, so Vehicle Projects may not proffer his opinions at trial as such. See ECF Nos. 39-2, 39-3. However, Vehicle Projects has not purported to present Dr. Miller's opinions as those of an expert, but instead indicates that they are those of the owner of the property at issue. See ECF No. 35 at 5. Owner opinions as to the value of lost property are considered competent. See, e.g., Grange Mut. Fire Ins. Co. v. Golden Gas Co., 298 P.2d 950, 955 (Colo. 1956) (“Some of the individual plaintiffs testified from their written memoranda as to what they owned that was destroyed by the fire and how they arrived at their final values for loss purposes. This was proper.”). As a result, I have considered Dr. Miller's opinion as to the market value of the damaged equipment, and I find that it supports the existence of a genuine fact dispute.

         Given the genuine dispute over the amount of damages, it is inappropriate for the Court to decide the amount of damages at this stage. As a result, iCarpets' motion for partial summary judgment is GRANTED insofar as the Court agrees that the correct measure of damages is the difference in the equipment's market value before and after it was damaged, ...


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