Full Opinion (html_with_citations)

                                                                                      FILED
                                                                                  Dec 14 2023, 8:50 am

                                                                                      CLERK
                                                                                  Indiana Supreme Court
                                                                                     Court of Appeals
                                                                                       and Tax Court




ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
Lonnie D. Johnson                                          BUILDING ASSOCIATES, INC.
Benjamin A. Katchur                                        Crystal G. Rowe
Clendening Johnson & Bohrer, P.C.                          April M. Jay
Bloomington, Indiana                                       Kightlinger & Gray, LLP
                                                           Indianapolis, Indiana

                                                           ATTORNEYS FOR APPELLEE
                                                           TABOR/BRUCE ARCHITECTURE
                                                           & DESIGN, INC.
                                                           Nicholas C. Nizamoff
                                                           Michael D. Heavilon
                                                           DeFur Voran, LLP
                                                           Fishers, Indiana

                                                           ATTORNEYS FOR APPELLEE
                                                           EDWARDS MASONRY, INC.
                                                           Thomas M. Kimbrough
                                                           Michael H. Michmerhuizen
                                                           Barrett McNagny LLP
                                                           Fort Wayne, Indiana




                                            IN THE
    COURT OF APPEALS OF INDIANA




Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023                       Page 1 of 11
      BMI Properties, LLC,                                         December 14, 2023
      Appellant-Plaintiff,                                         Court of Appeals Case No.
                                                                   23A-PL-988
               v.
                                                                   Appeal from the
                                1
      Daewoong, LLC; Tabor/Bruce                                   Monroe Circuit Court
      Architecture & Design, Inc.;
                                2                                  The Honorable
      Building Associates, Inc.; and                               Kara E. Krothe, Judge
      Edwards Masonry, Inc.,
      Appellees-Defendants.                                        Trial Court Cause No.
                                                                   53C06-2107-PL-1448



                                       Opinion by Senior Judge Baker
                                       Judges May and Vaidik concur.


      Baker, Senior Judge.


      Statement of the Case
[1]   BMI Properties, LLC (BMI) appeals from the trial court’s order granting

      summary judgment in favor of Tabor/Bruce Architecture & Design, Inc.

      (Tabor/Bruce), Building Associates, Inc (BAI), and Edwards Masonry, Inc.

      (Edwards Masonry). The trial court found that BMI’s claims were precluded as

      a matter of law by the economic loss doctrine and the acceptance rule.




      1
       BMI informs us that “[T]o date, Daewoong has failed to appear or participate in this litigation.” However,
      pursuant to Indiana Appellate Rule 17(A), “A party of record in the trial court . . . shall be a party on
      appeal.”
      2
        Building Associates, Inc. has not filed a separate appellate brief but has sought and was granted permission
      to join in the briefs of Edwards Masonry, Inc. and Tabor/Bruce Architecture & Design, Inc.

      Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023                              Page 2 of 11
      Concluding that genuine issues of material fact exist making the grant of

      summary judgment inappropriate and that BMI’s claims are not precluded as a

      matter of law, we reverse and remand.


      Facts and Procedural History
[2]   Daewoong, LLC (Daewoong) owned property in Bloomington and contracted

      with BAI in 2016 for the construction of a mixed-use building on the property.

      The first floor consisted of commercial units, while the second and third floors

      were residential apartment units. BMI entered into a purchase agreement with

      Daewoong for the mixed-use building and property on June 4, 2019.


[3]   The purchase agreement provided that BMI had the right to obtain a physical

      inspection of the property for any “major defect in or with the [property]” and

      to withdraw from the transaction within fifteen days of the receipt of the

      inspection report if the report disclosed any material property defects.

      Appellant’s App. Vol. II, pp. 41-42. The purchase agreement further provided

      that “If [BMI] does not make a written objection to any problem(s) revealed in

      the report(s) within such time period, the [property] shall be deemed acceptable

      to [BMI]. Id. at 42.


[4]   A survey, environmental assessment, and observable conditions physical

      inspection were completed, and Daewoong provided BMI with an

      environmental review completed by the Indiana Department of Environmental

      Management. The parties closed on the property on July 31, 2019.



      Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023       Page 3 of 11
[5]   Sometime in August 2019, a residential tenant’s bed post fell through the

      floorboard on the day they moved into the apartment. And bricks fell off the

      exterior of the building, damaging a tenant’s vehicle.


[6]   After these events, BMI arranged to have the building inspected by the Veridus

      Group’s Building Forensics Director Dan Weekes. Weekes’ inspection

      included findings of moisture damage to the south and west exterior walls and

      adjacent areas, cracks located in the brick veneer, improper drainage systems

      for the brick veneer, and design defects in how the brick veneer was to be

      constructed. BMI also hired Mold Diagnostics, LLC to perform spore trapping

      and surface testing. The results of that inspection revealed there were multiple

      areas with unacceptable levels of airborne spores within the building, and

      visible black mold, which poses a serious risk to human health.


[7]   BMI initially filed its complaint against Daewoong, but later amended its

      complaint to name BAI, the general contractor; Edwards Masonry; and the

      building’s architect, Tabor/Bruce. BMI alleged a breach of contract claim

      against Daewoong. As for the others, BMI alleged negligence and breach of the

      warranty of habitability, relating to the defects discovered during the

      inspections. Though BMI served Daewoong by publication, Daewoong has

      failed to appear or participate in this action. The remaining defendants

      separately filed motions for summary judgment, with each contending that BMI

      was precluded from recovery against them under the acceptance rule and

      economic loss doctrine. The trial court agreed and granted the motions for



      Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023      Page 4 of 11
      summary judgment. BMI now appeals, contending that the entry of summary

      judgment was inappropriate.


      Discussion and Decision
      Standard of Review
[8]   We review a trial court's summary judgment decision de novo, using the same

      standard as the trial court. Griffin v. Menard, Inc.,
175 N.E.3d 811
, 812-13 (Ind.

      2021). Summary judgment is appropriate “if the designated evidentiary matter

      shows that there is no genuine issue as to any material fact and that the moving

      party is entitled to a judgment as a matter of law.” Ind. Trial Rule 56(C).


[9]   “The moving party bears the burden of making a prima facie showing that there

      are no genuine issues of material fact and that the movant is entitled to

      judgment as a matter of law . . . .” Dreaded, Inc. v. St. Paul Guardian Ins. Co.,
904 N.E.2d 1267, 1270
 (Ind. 2009). If the movant satisfies that burden, “the burden

      then shifts to the non-moving party to designate and produce evidence of facts

      showing the existence of a genuine issue of material fact.”
Id.
 “A fact is

      ‘material’ if its resolution would affect the outcome of the case, and an issue is

      ‘genuine’ if a trier of fact is required to resolve the parties’ differing accounts of

      the truth . . . .” Williams v. Tharp,
914 N.E.2d 756, 761
 (Ind. 2009). “We must

      construe all factual inferences in favor of the non-moving party, and all doubts

      as to the existence of a material issue must be resolved against the moving

      party.” Hale v. SS Liquors, Inc.,
956 N.E.2d 1189, 1191
 (Ind. Ct. App. 2011).




      Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023         Page 5 of 11
[10]   The Indiana Supreme Court has explained, “Indiana consciously errs on the

       side of letting marginal cases proceed to trial on the merits, rather than risk

       short-circuiting meritorious claims.” Hughley v. State,
15 N.E.3d 1000, 1004

       (Ind. 2014). As a result, while the non-moving party has the burden on appeal

       of showing the Court that the grant of summary judgment was erroneous, we

       carefully assess the trial court’s decision to ensure the non-movant was not

       improperly denied a trial. Brown by Brown v. Southside Animal Shelter, Inc.,
158 N.E.3d 401
, 405 (Ind. Ct. App. 2020), adhered to on reh’g,
162 N.E.3d 1121

       (2021), trans. denied.


       Analysis
       A. The Acceptance Rule

[11]   The trial court concluded the acceptance rule bars recovery by BMI because of

       the lack of privity between BMI, BAI, Edwards Masonry, and Tabor/Bruce.

       The court found that BMI, who lacked contractual privity, was precluded from

       recovery by Daewoong LLC’s acceptance of the project.


[12]   “In order to prevail on a claim of negligence, the plaintiff is required to prove:

       (1) a duty owed by the defendant to the plaintiff; (2) a breach of that duty by

       the defendant; and (3) an injury to the plaintiff proximately caused by the

       breach.” Peters v. Forster,
804 N.E.2d 736, 738
 (Ind. 2004). “Duty is a question

       of law for the court to decide.”
Id.
 “Absent a duty, there can be no breach of

       duty and thus no negligence or liability based upon the breach.”
Id.




       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023       Page 6 of 11
[13]   The trial court’s order was entered prior to our Supreme Court’s decision in

       U.S. Automatic Sprinkler Corp. v. Erie Ins. Exchange,
204 N.E.3d 215
 (Ind. 2023).

       In Automatic Sprinkler, our Supreme Court observed that the acceptance rule,

       with its various exceptions, “generally shielded” contractors “from third-party

       liability once the work is completed and then accepted by the owner.” 204

       N.E.3d at 225. In other words, ‘“contractors do not owe a duty of care to third

       parties after the owner has accepted the work.”’ Peters,
804 N.E.2d at 738

       (quoting Blake v. Calumet Constr. Corp.,
674 N.E.2d 167, 170
 (Ind. 1996)).


[14]   However, the court noted that in Peters it abandoned the acceptance rule in

       favor of the “foreseeability doctrine.” 204 N.E.3d at 225. The Peters Court held

       that,


               A rule that provides that a builder or contractor is liable for injury
               or damage to a third person as a result of the condition of the
               work, even after completion of the work and acceptance by the
               owner, where it was reasonably foreseeable that a third party
               would be injured by such work due to the contractor’s
               negligence, is consistent with traditional principles of negligence
               upon which Indiana’s scheme of negligence law is based.
804 N.E.2d at 742
.


[15]   In Automatic Sprinkler, our Supreme Court “clarif[ied] the foreseeability

       doctrine’s scope in two ways.” 204 N.E.3d at 226. “First, the foreseeability

       doctrine applies when a third party seeks recovery for personal injury that was a

       foreseeable consequence of a contractor’s allegedly negligent work.” Id. This

       harmonized the Peters decision’s goal of “equaliz[ing] the liability field in the

       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023        Page 7 of 11
       context of negligence claims resulting in injuries to third parties.” Id. “Second,

       the doctrine applies when a third party seeks recovery for property damage if

       personal injury—though not sustained—is a foreseeable consequence of a

       contractor’s allegedly negligent work.” Id. This harmonized the Citizen’s Gas &

       Coke Util. v. Amer. Econ. Ins.,
486 N.E.2d 998, 1000
 (Ind. 1985) decision’s goal

       of maintaining the privity requirement’s operation to preclude recovery for

       property damages in a negligence action, where the negligent work poses a risk

       only to property and not persons. Id. at 226-27.


[16]   Turning now to the case at hand, we conclude that BMI’s claims survive the

       motions for summary judgment. BMI’s complaint alleged that due to the

       condition of the mixed-use building, a tenant’s bedpost broke through the

       floorboard of the apartment when the tenant was moving in, and airborne

       spores were present within the building, along with visible black mold, which

       pose a serious risk to human health. Additionally, the brick veneer of the

       building was peeling away allegedly due to design defects and improper

       drainage leading to bricks falling to the ground. A tenant’s car was allegedly

       damaged by the falling brick.


[17]   No injuries to a person are alleged to have occurred. And, fortunately, no one

       was injured when the bedpost broke through the floorboard, no one became ill

       due to exposure to the airborne spores and/or black mold, and no passersby

       were injured when the brick veneer peeled away from the building due to the

       alleged faulty work, falling and striking the vehicle. However, whether personal

       injury was a foreseeable consequence of BAI, Edwards Masonry, or

       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023     Page 8 of 11
       Tabor/Bruce’s work presents a genuine issue of material fact. We conclude

       that the trial court, although not having the benefit of our Supreme Court’s

       decision in Automatic Sprinkler, erred by granting summary judgment under the

       acceptance rule.


       B. Economic Loss Doctrine

[18]   The trial court also concluded that the economic loss doctrine precluded BMI

       from recovering for its claims. More specifically, the court held that “the costs

       [BMI] is aiming to recover, repair to the apartment building, is[sic] purely

       economic.” Appellant’s App. Vol. II, p. 21.


[19]   “[T]he longstanding rule under Indiana law is that a defendant is not liable in

       tort when a plaintiff alleges only purely economic loss, which is financial harm

       arising from the failure of the product or service to perform as expected.”

       Residences at Ivy Quad Unit Owners Ass’n, Inc. v. Ivy Quad Dev., LLC,
179 N.E.3d 977
, 983 (Ind. 2022) (internal quotations omitted). “Under Indiana’s economic

       loss doctrine, a defendant is not liable in tort ‘for any purely economic loss

       caused by its negligence.’”
Id.
 at 982-83 (quoting Indianapolis-Marion Cnty. Pub.

       Libr. v. Charlier Clark & Linard, P.C.,
929 N.E.2d 722, 729
 (Ind. 2010)).

       “‘Economic losses’ occur when there is no personal injury and no physical

       harm to other property.” Gunkel v. Renovations, Inc.,
822 N.E.2d 150, 153-54

       (Ind. 2005).


[20]   “Because these losses are, essentially ‘disappointed contractual or commercial

       expectations,’ contract law—not tort law—is most appropriate for resolving

       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023        Page 9 of 11
       liability.” Ivy Quad, 179 N.E.3d at 983 (quoting Gunkel,
822 N.E.2d at 154
).

       “Notably, however, pure economic loss excludes damages that either stem from

       personal injury or are sustained by ‘other property.’”
Id.
 (quoting Gunkel,
822 N.E.2d at 153-54
). “When such damages occur, recovery in tort is appropriate,

       and the economic loss doctrine does not bar recovery.”
Id.


[21]   The Court further explained that “[o]ur economic loss doctrine is rooted in the

       understanding that parties typically allocate the risk of economic loss through a

       direct, contractual relationship.”
Id.
 “But in the construction-project context—

       where contractual privity between each participant may be lacking—parties

       typically allocate that risk through ‘a network or chain of contracts.’”
Id.

       (quoting Indianapolis-Marion Cnty. Pub. Libr.,
929 N.E.2d at 739
). With “‘such a

       contract chain,’ the participants retain ‘the opportunity to bargain and define

       their rights and remedies, or to decline to enter into the contractual

       relationship.’”
Id.
 (quoting Indianapolis-Marion Cnty. Pub. Libr.,
929 N.E.2d at 740
). “And when construction-project participants are connected in this way,

       the economic loss rule prevents a party from recovering in tort for commercial

       losses that it could have protected itself against through the contractual

       relationship.”
Id.


[22]   Our Supreme Court summarized the analysis involved as follows: “Thus, when

       determining whether our economic loss doctrine precludes tort recovery, two

       considerations guide our review: the type of damages sought and the

       contractual relationship between the parties.”
Id.



       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023     Page 10 of 11
[23]   We first look to the contractual relationship between the parties before engaging

       in an analysis of the type of damages sought. BMI concedes that there was no

       contractual relationship between it and BAI, Edwards Masonry, and

       Tabor/Bruce. Appellant’s Br. p. 14. Edwards Masonry simply contends that

       BMI had other options available to allocate its risks, without refuting the lack of

       contractual relationship. See Edwards Masonry Br. p. 18. And Bruce/Tabor

       states that “BMI . . . had no contract with Tabor/Bruce or any of the other

       Construction Parties.” Bruce/Tabor Br. p. 10. The economic loss doctrine

       does not apply to this situation because there is no contractual relationship

       between the parties and, thus, no network or chain of contracts where the

       parties allocated risks. And, as a consequence, we need not examine the type of

       damages sought. We conclude that the economic loss doctrine should not

       preclude BMI’s claims from going forward and that the trial court’s entry of

       summary judgment was in error.


       Conclusion
[24]   In light of the foregoing, we conclude that neither the acceptance rule nor the

       economic loss rule entitles the defendants to summary judgment. Therefore, we

       reverse and remand this matter to the trial court for further proceedings.


[25]   Reversed and remanded.


       May, J., and Vaidik, J., concur.




       Court of Appeals of Indiana | Opinion 23A-PL-988 | December 14, 2023    Page 11 of 11