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Town of Alma v. Azco Construction9/18/2000
nd AZCO moved to dismiss the breach of implied warranty of sound workmanship and negligence claims. The trial court granted AZCO's motion to dismiss these claims and the case proceeded to trial on the breach of contract claim only, with the jury returning a verdict for AZCO on this claim. AZCO moved unsuccessfully for an award of attorney's fees based on a provision of the contract providing that the successful party in any litigation shall be entitled to reasonable legal expenses as part of any judgment.
Petitioners appealed the trial court's dismissal of its breach of implied warranty of sound workmanship and negligence claims, and AZCO cross-appealed the trial court's order denying its request for attorney's fees. The court of appeals affirmed the trial court's dismissal of Petitioners' claims, but reversed the trial court's order denying AZCO's motion for attorney's fees and remanded for a hearing on the attorney's fees. In affirming the dismissal of Petitioners' negligence claim, the court of appeals relied on the economic loss rule and stated that " o hold otherwise would permit the non-breaching party to avoid the contractual limitation of remedy." Town of Alma, 985 P.2d at 57.
We granted certiorari to review the dismissal of Petitioners' negligence claim and the reversal of the order denying attorney's fees.
II. ANALYSIS
This case, along with Grynberg v. Agri Tech, Inc., No. 99SC399, slip op. (Colo. Sept. 18, 2000), presents an opportunity for us to address the status of the economic loss rule in Colorado. The rule has been applied by our court of appeals in various contexts to bar tort claims. As this is a matter of first impression, our analysis encompasses an examination of the development of the rule in other jurisdictions, as well as a discussion of the principles and rationale underlying the rule.
Standard of Review
We are reviewing the trial court's grant of AZCO's motion to dismiss Petitioners' negligence claim pursuant to C.R.C.P. 12(b)(5). This rule is designed to allow defendants to test the formal sufficiency of the complaint. See Coors Brewing Co., 978 P.2d at 665. In evaluating a Rule 12(b)(5) motion, trial courts may consider only those matters stated in the complaint and must accept all allegations of material fact as true and view the allegations in the light most favorable to the plaintiff. See id. When reviewing cases involving a trial court's ruling on a motion to dismiss pursuant to Rule 12(b)(5), we apply these same standards. See id.
B. Origins of the Economic Loss Rule
Broadly speaking, the economic loss rule is intended to maintain the boundary between contract law and tort law. Although these two areas of law traditionally occupy discrete spheres of legal practice, the distinction between the two blurs. This becomes problematic when, as in this case, a commercial buyer seeks to use a tort theory to recover damages for a defective product.
The economic loss rule emerged largely from the development of products liability jurisprudence. As courts abandoned the requirement for privity in contract, the doctrine of strict liability in warranty developed with the leading case of Henningsen v. Bloomfield Motors, Inc., 161 A.2d 69 (N.J. 1960). The Henningsen court held that an automobile manufacturer and a dealer were liable to the automobile purchaser's wife, who was driving the car when she was injured, on a theory of implied warranty of safety. See id. at 84. The Henningsen decision was quickly followed by a flood of cases from other jurisdictions extending the implied warranty theory to many other products. See W. Page Keeton et al., Prosser and Keeton on the Law of Tor
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