DMK Development Group, LLC v. Cole + Russell Architects, Inc.

UNITED STATES DISTRICT COURT

SOUTHERN DISTIRCT OF OHIO

WESTERN DIVISION

DMK DEVELOPMENT GROUP, LLC,

Plaintiff,

v.

COLE + RUSSELL ARCHITECTS,

INC., Case No. 1:19-cv-301

JUDGE DOUGLAS R. COLE

Defendant/Third-Party

Plaintiff,

v.

PRATER ENGINEERING

ASSOCIATES, INC.,

Third-Party Defendant.

OPINION & ORDER

This cause comes before the Court on Third-Party Defendant Prater

Engineering Associates, Inc.’s (“Prater”) Motion for Partial Judgment on the

Pleadings (Doc. 14) and Defendant/Third-Party Plaintiff Cole + Russell Architects,

Inc.’s (“CR”) Motion for Partial Judgment on the Pleadings (Doc. 15). For the reasons

stated more fully below, the Court GRANTS IN PART and DENIES IN PART

Prater’s Motion (Doc. 14) and GRANTS CR’s Motion (Doc. 15), consistent with this

Opinion and Order.

BACKGROUND

This case arises from two agreements to perform architectural services in

connection with the development of two senior housing communities in southern

Ohio. The parties refer to these projects as the Trilogy Springfield Project and the

Trilogy Cincinnati Project (collectively, the “Projects”). (DMK’s Compl. at ¶¶ 10–11,

Doc. 1, #2–3). CR and Plaintiff DMK Development Group, LLC (“DMK”) were parties

to the primary agreement (the “DMK-CR Agreement”), which obligated CR to provide

certain specified architectural services in connection with the construction of the two

assisted living facilities. (Id.). The DMK-CR Agreement contained the following

provision purporting to limit CR’s liability:

In recognition of the relative risks, rewards and benefits of the

Project to both [DMK] and [CR], the risks have been allocated such that

[DMK] agrees to limit [CR]’s liability for any and all claims, losses, costs,

expenses and/or damages of any nature whatsoever from negligent

errors or omissions or causes, including reasonable attorney’s fees and

costs and expert witness fees and costs, so that the total aggregate

liability of [CR] shall not exceed the amount of [CR]’s fee, or, if then

outstanding, such portion of the fee actually paid by [DMK]. It is

intended that this limitation shall apply to any and all liability or cause

of action however alleged or arising, unless otherwise prohibited by law.

(CR’s Answer, Countercl., & Third-Party Compl. (“CR’s Third-Party Compl.”), Ex. A

at #63, Doc. 4-1; DMK’s Compl., Ex. A at #17, Doc. 1-1).

CR then entered a subconsultant agreement with Prater (the “CR-Prater

Agreement”), an engineering firm, under which Prater agreed to provide engineering

services to ensure that the designs for the two projects complied with certain

ventilation and indoor air quality requirements. (CR’s Third-Party Compl. at ¶ 6,

Doc. 4, #47). The CR-Prater Agreement contained the following incorporation clause:

[Prater] acknowledges that CR has entered or intends to enter a

Prime Agreement with [DMK], which is incorporated by reference and

made part of this Request, or any subsequent and related agreement

between CR and [Prater]. CR shall assume towards [Prater] all

obligations and responsibilities that [DMK] assumes toward CR, and

[Prater] assumes towards CR all the obligations and responsibilities

that CR assumes toward [DMK]. CR shall have the benefit of all rights,

remedies and redress against [Prater] that [DMK], under the Prime

Agreement, has against CR, and [Prater] shall have all the benefit of the

rights, remedies, and redress against CR that CR under the Prime

Agreement, has against [DMK]. Where a provision of the Prime

Agreement is inconsistent or in conflict with a provision of this Request,

or any subsequent and related agreement between CR and [Prater], the

Prime Agreement shall govern. Absent CR’s fees or compensation, a copy

of the Prime Agreement is available to [Prater].

(Id., Ex. B at #66–67 n.1, Doc. 4-2).

At some point after the parties entered into those agreements, the contractual

relationships fell apart. (The pleadings do not explain what exactly caused the alleged

breaches or when they occurred.)

In any event, DMK initiated this lawsuit on April 26, 2019, asserting three

causes of actions against CR for breach of contract, professional negligence, and

indemnity arising from CR’s alleged failure to properly design and prepare

construction documents and to perform limited construction observation in

connection with the Projects. (DMK’s Compl. at ¶¶ 10–11, Doc. 1, #2–3). In response

to DMK’s Complaint, CR filed an Answer, Counterclaim, and Third-Party Complaint.

(Doc. 4). In its pleading, CR denied DMK’s allegations, asserted breach of contract

and unjust enrichment counterclaims against DMK, and lodged indemnity, breach of

contract, negligence, and contribution and apportionment claims against Prater. (See

id., #39–52).

Now before the Court are two Motions for Partial Judgment on the Pleadings,

filed separately by Prater and CR.

In CR’s Motion, CR requests that the Court enter partial judgment in its favor

because, in its view, the DMK-CR Agreement caps CR’s total potential liability to

DMK for the alleged breaches of contract and professional negligence at the amount

CR received in professional fees from DMK under that agreement. Unsurprisingly,

DMK was the only party to oppose CR’s Motion. According to DMK, the “limitation of

liability” provision in the DMK-CR Agreement only applies to DMK’s breach of

contract claim against CR. The cap does not limit liability on the professional

negligence claim, says DMK, as the latter claim arose from CR’s independent

“professional” duty as an architect. Separately, assuming that the “limitation of

liability” provision applies to some or all of DMK’s claims against CR, the parties also

disagree about how to calculate the amount of the cap on damages under that

provision.

Prater’s Motion presents similar arguments based on the incorporation clause

in the CR-Prater Agreement, which grants Prater “the benefit of the rights, remedies,

and redress against CR that CR under the Prime Agreement, has against [DMK].”

(CR’s Third-Party Compl., Ex. B at #66–67 n.1). According to Prater, this clause limits

Prater’s potential liability under the CR-Prater Agreement to the amount of the fee

that Prater received under the CR-Prater Agreement (just like the DMK-CR

Agreement limited DMK to the fee that CR received). CR opposes Prater’s Motion,

arguing that Prater is misstating the effect of the incorporation clause in the CR-

Prater Agreement. According to CR, that clause granted Prater the same rights under

the CR-Prater Agreement that CR had under the DMK-CR Agreement. That means,

CR says, that the CR-Prater Agreement caps Prater’s liability, but that the cap is at

the amount of fees that CR received under the DMK-CR Agreement, not the amount

of fees that Prater received under the CR-Prater Agreement, as Prater contends.

LAW AND ANALYSIS

A. Standard Of Review.

A motion for judgment on the pleadings under Federal Rule of Civil Procedure

12(c) is analyzed in the same manner as a motion to dismiss under Rule 12(b)(6). See

Tucker v. Middleburg-Legacy Place, LLC, 539 F.3d 545, 549 (6th Cir. 2008). This

means all factual allegations in the complaint are construed in a light most favorable

to the plaintiff, with all their allegations accepted as true, and all reasonable

inferences drawn in their favor. See Bullington v. Bedford Cty., 905 F.3d 467, 469 (6th

Cir. 2018). All a plaintiff need do is provide “a short and plain statement of the claim

showing that the pleader is intitled to relief.” Keys v. Humana, Inc., 684 F.3d 605,

608 (6th Cir. 2012) (quoting Fed. R. Civ. P. 8(a)(2)).

But that short and plain statement must offer more than mere “labels and

conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “‘[A] formulaic recitation of

the elements of a cause of action will not do.’” Id. (quoting Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 570 (2007)). There must be “sufficient factual matter,

accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting

Twombly, 550 U.S. at 570). This means a complaint must contain “either direct or

inferential allegations respecting all material elements to sustain recovery under

some viable legal theory.” Bishop v. Lucent Techs., Inc., 520 F.3d 516, 519 (6th Cir.

2008) (quotation omitted). “Conclusory allegations or legal conclusion masquerading

as factual allegations will not suffice.” Id. (citing Meziboy v. Allen, 411 F.3d 712, 716

(6th Cir. 2005)). In sum, an action will be dismissed under this standard where “there

is no law to support the claims made.” Stew Farm, Ltd. v. Nat. Res. Conservation

Serv., 967 F. Supp. 2d 1164, 1169 (S.D. Ohio 2013) (citing Rauch v. Day & Night Mfg.

Corp., 576 F.2d 697, 702 (6th Cir. 1978)). The same holds where “the facts alleged are

insufficient to state a claim.” Id.

B. CR’s Motion For Partial Judgment On The Pleadings.

In its motion, CR asks the Court for an Order that limits CR’s total potential

liability to DMK on the claims that DMK has alleged against CR.1 As a starting point,

DMK and CR agree on one thing—they both acknowledge that the limitation of

liability provision in the DMK-CR Agreement validly caps CR’s liability for damages

on the breach of contract claim, and that it limits such damages to “the amount of

[CR]’s fee, or if then outstanding, such portion of the fee actually paid by [DMK].”

(CR’s Third-Party Compl., Ex. A at #63). But that agreement leaves two key points of

dispute. First, DMK and CR disagree as to whether the contractual limitation of

liability provision also validly limits damages related to DMK’s professional

negligence claim against CR. Second, the parties dispute whether the clause limits

CR’s liability for the breach of contract claim to: (1) the amount that DMK had paid

to CR when DMK filed this lawsuit (which appears to be $372,041.42 (see DMK’s

1 The parties do not separately and specifically discuss the indemnification claim. At the same

time, as the analysis set forth herein applies to all claims that arise from the contractual

relationship between the parties, however those claims are labeled, that would include within

its sweep any indemnification theory.

Resp. at #165 n.2)); or rather (2) the amount that DMK will pay to CR under the

contract should CR prevail on its breach of contract claim (which apparently seeks

another $74,235.56). The Court addresses the issues in that order.

1. The Limitation Of Liability Provision In The DMK-CR

Agreement Applies To DMK’s Professional Negligence Claim.

In Ohio, if a contract is unambiguous, then its interpretation is a matter of law.

Inland Refuse Transfer Co. v. Browning-Ferris Indus., Inc., 474 N.E.2d 271, 272 (Ohio

1984). And, absent a specific showing that it runs afoul of a public policy concern or

is unconscionable, courts applying Ohio law will uphold unambiguous limitation of

liability clauses in commercial contracts under the traditional principle of freedom of

contract. Dixon v. Van Sweringen Co., 121 Ohio St. 56, 63, 166 N.E. 887, 889 (Ohio

1929); Richard A. Berjian, D.O., Inc. v. Ohio Bell Tel. Co., 54 Ohio St. 2d 147, 158,

375 N.E.2d 410 (Ohio 1978). Here, DMK agreed “to limit [CR]’s liability for any and

all claims, losses, costs, expenses and/or damages of any nature whatsoever from

negligent errors or omissions or causes … so that the total aggregate liability of [CR]

shall not exceed the amount of [CR]’s fee, or, if then outstanding, such portion of the

fee actually paid by [DMK].” (CR’s Third-Party Compl., Ex. B at #66–67, n.1). The

parties agree that the DMK-CR Agreement’s limitation of liability is unambiguous

and legally sound. Thus, DMK takes no issue with the Court’s general application of

that provision to the breach of contract claim.

Where DMK and CR part ways, however, is on the question of whether that

same provision restricts the damages resulting from DMK’s professional negligence

claim. DMK argues that the provision does not cap the damages related to that cause

of action because it arises from CR’s alleged breach of an independent duty—the

professional standard of care that any architect must perform. But, for at least two

reasons, that argument fails here. First, the professional negligence claim against CR

sounds in contract, not in tort, and so, by DMK’s own admission, the limitation of

liability provision applies to it, too. Second, even if DMK could establish a separate

professional negligence claim arising in tort here, it has not explained why the

limitation of liability provision caps damages arising only from contracts and not also

from torts.

Starting with the first issue, under Ohio law, a cognizable tort action must

allege a breach “of some positive duty imposed by law because of the relationship of

the parties, rather than … a mere omission to perform a contract obligation.” Cork-

Howard Constr. Co. v. Dirty D. Props., LLC, No. 16-cv-1964, 2017 WL 5574145, *2

(N.D. Ohio Nov. 20, 2017) (citing Bowman v. Goldsmith Bros. Co., 109 N.E.2d 556,

557 (Ohio Ct. App. 1952)). Additionally, a proper tort claim “must include actual

damages attributable to the wrongful acts of the alleged tortfeasor which are in

addition to those attributable to the breach of the contract.” Babcock & Wilcox Power

Generation Grp., Inc. v. R.T. Patterson Co., No. 5:13-cv-2071, 2015 WL 631189, *2

(N.D. Ohio Feb. 12, 2015) (citing Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684

N.E.2d 1261, 1270 (Ohio Ct. App. 1996)).

With those extra requirements to establish a claim for tort in mind, consider

DMK’s Complaint. There, DMK alleges CR breached the DMK-CR Agreement by:

a.) Failing to perform and provide design services consistent with the

degree of care and skill ordinarily exercised by members of the same

profession currently practicing under similar circumstances.

b.) Failing to provide design, services, work and materials in compliance

with the applicable ASHRAE requirements for the Projects which

resulted in the tear out, redesign, rework and installation of

construction work to comply with applicable laws, rules and

regulations.

c.) Failing to provide design services, work and materials in compliance

with the applicable NFPA 101/high hazard requirements for the

Projects which resulted in the tear out, redesign, rework and

installation of construction work to comply with the applicable laws,

rules and regulations.

(DMK’s Compl. at ¶ 15, #4).

DMK then relists the identical duties and breaches when pleading its

professional negligence claim against CR. (Id. at ¶ 21, #4). Thus, the only obligation

DMK identifies in the Complaint is CR’s duty to perform services in a manner

consistent with professional standards, a duty DMK concedes is included, expressly

or impliedly, in its contract with CR. Compounding the problem, DMK recycles its

damages allegations for both causes of actions. See Battista v. Lebanon Trotting Ass’n,

538 F.2d 111, 117 (6th Cir. 1976) (“When the promissee’s injury consists merely of

the loss of his bargain, no tort claim arises because the duty of the promisor to fulfill

the term of the bargain arises only from the contract.”). Accordingly, DMK’s contract

claim and professional negligence claim are not separate causes of action arising from

independent duties, but rather, are a single claim grounded in contract law only. See

Hilsinger Bldg. & Dev. Corp. v. Terracon Consult., Inc., No. 1:18-cv-900, 2019 WL

4601774, *7–8 (S.D. Ohio Sep. 23, 2019) (finding that, because the substance of

plaintiffs’ negligence and breach of duties claims amounted to an alleged breach of

contract for failing to perform services in accordance with professional standards, the

plaintiffs’ negligence and breach of duties claims sounded only in contract).

To the extent that DMK argues that Ohio courts have recognized that an

architect’s professional duties exist independent of any contract, the Court finds that

contention at best only partially true and, properly understood, of no benefit to DMK

here. To be sure, under Ohio law an architect has a professional standard of care that

exists regardless of any contract. B & B Constr. & Dev., Inc. v. Olsavsky Jaminet

Architects, Inc., 984 N.E.2d 419, 427 (Ohio Ct. App. 2012) (noting the architect-

defendant conceded that, absent the contract, it still had a duty of professional care).

But, when a contract between a party and an architect obligates the architect to

exercise that same professional standard of care when completing the tasks called for

by the agreement, then the architect’s professional duties and contractually duties

are no longer independent of one another. Rather, the professional negligence cause

of action (somewhat of a hybrid between common law tort duties and the legal

obligations arising as a provider of professional services) essentially merges with the

contract cause of action. See Hilsinger Bldg. & Dev. Corp., 2019 WL 4601774, at *7

(finding that because the only duty the plaintiffs relied upon arises out of the parties’

agreement, the plaintiffs’ claims were “grounded in contract law only”).

Further confirmation for this result comes from Ohio’s privity rules, which bar

tort claims to recover economic damages in the absence of privity of contract—a

limitation typically referred to as the economic-loss doctrine. Floor Craft Floor

Covering, Inc. v. Parma Comm. Gen. Hosp. Ass’n, 54 Ohio St. 3d 1, 560 N.E.2d 206

(Ohio 1990). As noted above, there is little doubt that, as an architecture firm, CR

had professional duties that existed even without the contract at issue. See B & B

Constr. & Dev., Inc., 984 N.E.2d at 427. But how did the breach of that independent

professional duty impact DMK in any way in this case, except economically? And if

the harm here is solely economic, had the parties never entered into the DMK-CR

Agreement, the economic-loss doctrine surely would bar DMK from recovery on a

professional negligence theory. Spring Creek Condo. Ass’n v. Colony Dev. Corp., 2008-

Ohio-1420, 2018 WL 802729 (Ohio Ct. App. 2008). Thus, CR’s independent duty as

an architect would provide no benefit to DMK in terms of potential recovery, absent

the contract. Put differently, it is only the existence of the contract here that provides

a pathway to recovery for the economic losses that DMK sustained as a result of CR’s

alleged breach of its duties. Evans Landscaping, Inc. v. Stegner, 969 N.E.2d 1264,

1268–69 (Ohio Ct. App. 2011). And here, that contract is between sophisticated

commercial entities that negotiated, bargained, and ultimately agreed on the terms

that would govern their relationship (some of which explicitly limit exposure).

Accordingly, because DMK’s right to recovery for its alleged economic harms, even on

the professional duty claim, depends upon the DMK-CR Agreement, DMK’s claims

are grounded in contract, and there is no independent, separate purely tort law cause

of action. Thus, as DMK admits that the damages cap validly applies to its contract

claim, that same cap necessarily applies to its professional negligence claim, which

sounds in contract despite DMK’s efforts to label it otherwise.

Separately, even if the professional negligence claim did sound in tort, the

same result would follow, albeit for slightly different reasons. According to DMK,

when an independent tort claim exists, Ohio law permits a plaintiff to recover

damages different from or beyond those that would be available under contract.

(DMK’s Resp. at #166 (citing R&H Trucking v. Occidental Fire & Cas. Co., 441 N.E.2d

816 (Ohio Ct. App. 1981))). That may well be the case, but that is not the end of the

story. Just because Ohio law may permit such recovery in the abstract, does not mean

that parties cannot agree to alter those background rules through a contract between

them. Here, DMK and CR unambiguously agreed “to limit [CR]’s liability for any and

all claims, losses, costs, expenses and/or damages of any nature whatsoever from

negligent errors or omissions or causes[.]” (CR’s Third-Party Compl., Ex. A at #63).

Through this provision, the parties clearly attempted to limit CR’s liability for

negligence at a specified amount.

To be sure, such contractual limitation of liability provisions regarding

negligence are “disfavored.” Orlett v. Suburban Propane, 561 N.E.2d 1066, 1069 (Ohio

1989). But, absent unconscionable or ambiguous language in the provision, a

disparity in bargaining power between the parties, or harm resulting from a party’s

failure to exercise any care whatsoever, “contracts limiting liability for negligence

will be upheld on a theory of freedom of contract.” Id. (citing Mansfield Mut. Ins. Co.

v. Cleveland, Cincinnati, Chi. & St. Louis R.R. Co., 74 Ohio St. 30, 77 N.E. 269 (Ohio

1906)); Richard A. Berjian, D.O., Inc., 54 Ohio St. 2d at 158.

Neither party contends that any of those concerns are present here. This is not

a case, for example, where the clause at issue prevents any liability at all (i.e., an

exculpatory clause). Rather, here the limit of liability is directly tied to the value

exchanged in the contract. Accordingly, the Court finds that, based on the plain

language of the DMK-CR Agreement’s limitation of liability provision, and in the

absence of any identified circumstances that warrant the Court to retrade or undo

the parties’ bargain, the limiting clause validly caps the damages that DMK can

recover for its professional negligence claim, whether that claim sounds in contract

or tort.

2. The Court Declines To Decide The Specific Amount Of The

Liability Cap At This Juncture.

Having determined that the limitation applies, there is a separate question as

to the amount of the cap. More specifically, in its Response to CR’s Motion for Partial

Judgment on the Pleadings, DMK requests the Court to determine whether the

capped amount is the amount that DMK had paid at the time it filed suit, or rather

the amount that CR will receive under the contract, should it ultimately prevail on

its counterclaim in this action. CR did not raise that issue in its own motion, though,

and DMK has not separately moved for judgment on the pleadings. Accordingly, given

the way in which the issue arose, as well as the lack of sufficient factual information

in the current record to resolve that dispute, the Court elects to refrain from

addressing that issue now.

B. Prater’s Motion For Partial Judgment On The Pleadings.

Separately, Prater also moves for partial judgment on the pleadings,

requesting an order from this Court limiting Prater’s potential liability in this case.

As discussed above, Prater is the third-party subcontractor defendant, who is a party

to the CR-Prater Agreement. To the extent that CR is liable to DMK, CR seeks to

recover from, or otherwise redirect fault toward, Prater under theories of indemnity,

breach of contract, negligence, and contribution and apportionment. (Prater’s Mot.

for Partial J., Doc. 14, #101–02).

Prater argues in its Motion for Partial Judgment on the Pleadings, that, for

two reasons, the CR-Prater Agreement limits its total liability in this case. First,

Prater contends that the CR-Prater Agreement incorporates the DMK-CR

Agreement, particularly the latter’s limitation of liability provision discussed at

length above, so that, as a functional matter, Prater is entitled to the same rights as

CR under that agreement. (Prater’s Mot. for Partial J. at #105). On that point, CR

(the only party to oppose Prater’s Motion) agrees and so concedes that the CR-Prater

Agreement incorporates the DMK-CR Agreement. (CR’s Resp. at #140).

Second, Prater argues that, because the incorporation provision grants it all

the rights that CR has under the DMK-CR Agreement, Prater’s limitation of liability

cannot exceed the amount of fees that Prater received from CR under the CR-Prater

Agreement. (Prater’s Mot. for Partial J. at #106). CR disagrees with this assertion.

(CR’s Resp. at #140–41). CR contends that Prater’s argument misreads the limitation

of liability provision’s language and in doing so reallocates risk between the parties

to the CR-Prater Agreement in a manner that the agreement does not contemplate.

The Court agrees with CR.

The plain language of the CR-Prater Agreement’s incorporation clause only

grants Prater the derivative right to limit its liability to the same amount as specified

under the DMK-CR Agreement. Nothing in either agreement suggests that Prater

has a right to a liability limitation that is calculated in any other manner, particularly

by reference to the fees that CR pays to Prater. Rather, the CR-Prater Agreement

grants Prater “all the benefit of the rights, remedies, and redress against CR that CR,

under the [DMK-CR Agreement], has against [DMK].” (CR’s Third-Party Compl., Ex.

B at #66–67). The limit on CR’s liability is set to a specific amount by the DMK-CR

Agreement—the liability “shall not exceed the amount of [CR]’s fee, or, if then

outstanding, such portion of the fee actually paid by [DMK].” (CR’s Third-Party

Compl., Ex. A at #63). The CR-Prater Agreement thus in turn adopts that same

limit—the fee that CR receives under the DMK-CR Agreement—as Prater’s

maximum liability to CR. If CR and Prater instead intended to limit Prater’s liability

to the fee that Prater received from CR, they should have made that intention clear.

Accordingly, the Court finds that the express terms of the agreements at issue here

limit Prater’s total aggregate liability under the CR-Prater Agreement to the same

amount as CR’s total aggregate liability under the DMK-CR Agreement.

CONCLUSION

For the reasons above, the Court GRANTS IN PART and DENIES IN PART

Prater’s Motion for Partial Judgment on the Pleadings (Doc. 14) and GRANTS CR’s

Motion for Partial Judgment on the Pleadings (Doc. 15).

SO ORDERED.

May 8, 2020

DATE DOUGLAS R. COLE

UNITED STATES DISTRICT JUDGE

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