Supreme Court undermines economic-loss rule

By Jeffrey P. Downer

The Washington Supreme Court has weakened the economic- loss rule, which had been a strong defense against tort claims arising from contractual relationships.
In Affiliated FM Ins. Co. v. LTK Consulting Servs., Inc., No. 82738-9 (Nov. 4, 21010) and Eastwood v. Horse Harbor Foundation, Inc., No. 81977-7 (Nov. 4, 2010), the Court considered the history and applicability of the rule in claims for professional negligence and the tort of waste and held that the rule did not apply to either.

The Supreme Court had adopted the economic-loss rule in Berschauer/Phillips Const. Co. v. Seattle Sch. Dist., 124 Wn.2d 816 (1994). There, a general contractor sued an architect, a structural engineering firm, and an inspector for economic losses that the contractor had suffered allegedly resulting from the defendants’ allegedly negligent design and other acts. The contractor and the defendants had contracts with the District, but not with each other. The Berschauer/Phillips Court held that the parties could have allocated their liabilities by contract, so that defendants could be liable for economic losses only if they arose from breach of contract, not from negligence. The rule applied even though the contractor and the defendant professionals had no direct contractual relationship, or privity, with each other.

Thirteen years later, the Court reaffirmed the rule in Alejandre v. Bull, 159 Wn.2d 674 (2007). There, plaintiff homebuyers sued the property seller for negligent misrepresentation and fraudulent concealment because the home’s septic system failed. The Alejandre Court held that the buyers’ damages were economic, rather than personal injuries or physical damages to property, and the parties’ contract could have allocated the rights or remedies between them for such damages. The Alejandre Court applied the economic-loss rule to the negligent-misrepresentation claim and dismissed it.

In Alejandre, the Court held that the economic-loss rule did not apply to the fraudulent-concealment claim and dismissed it on other grounds. This caused lower Washington appellate courts to reach conflicting decisions as to the scope of the rule.

In Eastwood and Affiliated FM, the Court found new rationales for the holdings in Berschauer/Phillips and Alejandre. The Court now said that those cases turned on whether an “independent duty” existed apart from the parties’ contracts and, if so, the rule did not apply. The Court renamed the rule the “independent duty doctrine” and held that it would apply only where the law recognized no legal duty by defendant apart from its contract with plaintiff.
As a result, the Court permitted tort claims to proceed in both Eastwood and Affiliated FM. In Eastwood, the lessor of a horse farm could sue the lessee for damage to the premises based on the tort of waste, even though the lease provided for remedies for such damage, because the tort of waste could arise even without a written contract. In Affiliated FM, the Court allowed the Seattle Monorail’s operating company to sue an engineering firm for allegedly negligent maintenance of a Monorail train that caught fire. Both cases suggest that for the “independent duty doctrine” to apply, there also must be contractual privity between plaintiff and defendant.

This rewriting of the economic-loss rule abandons its original rationale and probably defeats its application in most cases.

Defense may not contact plaintiff's doctor, even through his lawyer.

By Deborah A. Severson

The rule prohibiting a defendant in a personal- injury action from interviewing plaintiff’s health-care provider about the case also prevents the defense from communicating with the provider through his lawyer, the Washington Supreme Court has held.

In Smith v. Orthopedics Intl., Ltd., no. 83038-0 (Dec. 16, 2010), Brenda Smith underwent spinal surgery. A vascular surgeon, Dr. Kaj Johansen, was consulted regarding vascular problems Smith was experiencing, and later performed vascular surgeries on her. Smith contracted infections while hospitalized and later died. Her surviving husband sued the orthopedic surgeon and his clinic, Orthopedics International, for wrongful death.

Prior to trial, Orthopedics International’s counsel listed Dr. Johansen as a witness and took his deposition. In his later trial testimony, Dr. Johansen acknowledged receiving plaintiff’s trial brief and a transcript of plaintiff’s expert’s testimony from Orthopedics’ lawyer. Dr. Johansen’s counsel had received them from Orthopedics’ lawyer, who had forwarded them to Dr. Johansen. Orthopedics’ lawyer also had sent an outline of expected direct examination of Dr. Johansen at trial, but Dr. Johansen’s lawyer did not forward that document to the doctor.

Ordinarily, under Loudon v. Mhyre, 110 Wn.2d 675 (1988), the defense may not contact plaintiff’s treating health-care providers. Smith’s counsel therefore requested an evidentiary hearing to determine the extent of the defense’s contacts with Dr. Johansen. Plaintiff also moved for a mistrial. The trial court denied both requests but instructed the jury that Dr. Johansen had received a copy of the expert’s testimony and that plaintiff’s counsel was unaware of that fact.

The jury returned a defense verdict. The trial court denied Smith’s motion for a new trial based on the contact between the defense and Dr. Johansen. Smith argued that at the new trial, Dr. Johansen’s testimony should be excluded. Smith appealed. The Court of Appeals affirmed, holding that Loudon did not preclude this transmittal of public documents to a treating physician who is a fact witness, and even if it did, Smith had not shown that he had suffered any harm.

Smith successfully petitioned for review before the Washington Supreme Court. The Supreme Court held that Loudon prohibited more than just interviews of treating health-care providers; it also prohibited any contacts or communications with the providers.

Orthopedics also argued that nothing in Loudon precluded this communication because it was “between lawyers acting as lawyers.” The Court rejected this argument also, concluding that such contact “undermines the physician’s role as a fact witness because during the process the physician would improperly assume a role akin to that of an expert witness for the defense.” This, the Court concluded, “may result in chilling communication between patients and their physicians about privileged medical information,” especially since the trial court here had concluded that the lawyers were “helping each other out.”

The Court also rejected Orthopedics’ argument that Dr. Johansen had received only public documents, because Orthopedics also had sent the outline of questions he would be asked at trial.

The Smith Court then considered what if any remedy was proper for this Loudon violation. The Court held that the aggrieved party must show that he suffered actual prejudice from the improper contact with the treating health-care provider. Here there was no evidence that Smith suffered any prejudice.

Only three of the Court’s nine justices signed this “lead” opinion. Two justices concurred in the result but argued that no Loudon violation had occurred. Four justices signed a concurring/dissenting opinion that asserted, like the lead opinion, that a Loudon violation had occurred, but argued that there needed to be a “meaningful remedy,” which must be the grant of a new trial.

Around The Firm

Philip B. Grennan and Erin J. Varriano won summary judgment in McElyea v. XYZ Corp., a premises-liability case. Plaintiff claimed that she suffered injuries when she slipped and fell on ice in the store’s parking lot. Phil and Erin successfully argued that XYZ was not liable because the mere presence of snow or ice does not constitute an unreasonable risk of harm, especially since plaintiff had knowledge of the condition, and XYZ provided a safer alternative route. The court agreed and dismissed the case. ... Phil Grennan and Janis G. Pelletier won summary judgment in Diaz v. XYZ Corp, a slip-and-fall action in which the plaintiff fell on juice in the store’s main aisles. Although the plaintiff conceded that she lacked proof that XYZ’s employees caused or had adequate notice of the spill, she argued that notice was not required under the self-service exception because XYZ set up the main aisleway so as to require customers to walk down the aisle in an effort to promote impulse shopping. Thus, plaintiff argued for an extension of the self-help exception to include a store’s main aisles. The court refused to do so and granted summary judgment to XYZ.

Joel E. Wright and Marc Rosenberg won dismissal of all claims against their client, a California law firm, in In re Benedict. Plaintiffs brought a class action against numerous defendants alleging violations of the Federal Fair Debt Collection Act and Consumer Protection Act, wrongful foreclosure, and securities fraud in the U.S. District Court for the Western District of Washington. Joel and Marc successfully moved for dismissal for their client on the basis that the federal court in Washington lacked jurisdiction over the California firm.

Steven G. Wraith and Peter E. Sutherland won a defense verdict in Central Park Tennis Club v. Emerald Paving, a construction-defect case, in King County Superior Court. The plaintiff tennis club sought more than $250,000 to replace five outdoor tennis courts, alleging that Emerald Paving had breached its contract and an implied warranty of design in its repair of the tennis courts in 2003. Plaintiff’s expert claimed that Emerald inadequately compacted the asphalt and unnecessarily placed an impermeable layer of geotexile fabric below the surface, which caused water that leaked through the surface to become trapped under the asphalt. This trapped water, through freezing and evaporation cycles, caused the asphalt to crack prematurely. The defendants successfully proved that the cracking was minimal and superficial and did not affect all five courts, and the courts required resurfacing because of normal usage. The jury returned a verdict in Emerald’s favor, finding that Emerald had breached no implied warranty of design in its repair of the tennis courts.

David L. Martin and Jennifer R. Porto won summary judgment on behalf of their client, a pharmacy, which allegedly failed to warn a customer of possible drug interactions. The plaintiff was prescribed two medications by her physician and the pharmacy filled both prescriptions. After taking the prescribed medications for a period of time the plaintiff became ill and claimed that the illness was as a result of the failure of the pharmacy to inform her of the complications of taking the two medications together. However, the plaintiff provided no medical testimony supporting that her illness was caused by the pharmacy’s alleged failure to warn. The court agreed that plaintiff failed as a matter of law to prove causation and dismissed the action with prejudice.

Bradley D. Westphal tried Vincent v. Burke in Snohomish County. This case was the result of a tragic, admitted-liability automobile accident in which Brad’s client died. Plaintiff alleged soft tissue injuries and requested $50,000 from the jury. The jury awarded the plaintiff $10,800, which was the exact amount Brad suggested that the jury award.

Sherry H. Rogers won a medical malpractice case, Schweikl v. Valley Medical Center and Durward in King County Superior Court. The plaintiff fell off a gurney, suffering a torn rotator cuff and neck and back injuries. Plaintiff claimed negligence in delivering nursing care, failing to adequately train nurses, failing to supervise nurse technicians, and failing to chart after the fall. The jury returned a defense verdict for Sherry’s clients after only one hour of deliberation. ... Brad Westphal received a defense verdict in Boilleau v. Secreto, a two-and-a-half-week jury trial in King County. Brad’s client rear-ended plaintiff’s vehicle. As a result, plaintiff claimed a closed-head injury with psychological damage and various orthopedic and soft-tissue injuries. Plaintiff sought significant damages including wage loss and ongoing health care treatment and asked the jury for more than $1 million. Although the jury found Brad’s client negligent, it determined the negligence was not the proximate cause of the alleged injuries and therefore found that plaintiff had suffered no damages.

Rebecca S. Izsak won a defense arbitration award in Frye v. Valley Medical Center. Plaintiff alleged injury when a lens from an x-ray machine detached, striking her on the leg. The arbitrator agreed that the hospital was not negligent in maintaining the equipment and that plaintiff failed to prove notice to the hospital of a defect in the machine. ... Jeffrey P. Downer and Janis Pelletier won a defense arbitration award in Vannoy v. Murphy, a malpractice claim against a probate lawyer. The arbitrator decided that plaintiff had not proven either negligence or causation.