298 F.Supp.2d 133 (2004) | Cited 13 times | D. Maine | January 5, 2004


The United States Magistrate Judge filed with the court on August 6,2003, with copies to counsel, his Memorandum Decision on Motion to Strikeand Recommended Decision on Defendant Environmental Management Group'sMotion for Partial Summary Judgment. The defendant EnvironmentalManagement Group, Inc. ("EMG") filed an objection to the RecommendedDecision on August 14, 2003.

On October 10, 2003, the Magistrate Judge filed his RecommendedDecision on Defendants David Maglietta's and Felicia Pfeffer's Motion toDismiss. The plaintiff filed an objection to that Recommended Decision onOctober 27, 2003.Page 2

I have reviewed and considered the Recommended Decisions, together withthe entire record; I have made a de novo determination of all mattersadjudicated by the Recommended Decisions; and I affirm in part and rejectin part the recommendations of the Magistrate Judge as discussed below.

Maine Rubber International ("Maine Rubber") contracted to buy realestate in Portland. It hired EMG, a Maryland engineering firm, to performan environmental site assessment before it closed the deal. EMG employeesMaglietta and Pfeffer issued Maine Rubber a favorable report on behalf ofEMG.1 Maine Rubber asserts no personal injuries or property damage,but claims unexpected expenses, and shutdown and relocation costs becauseof numerous environmental problems on the site not uncovered by Magliettaand Pfeffer. Maine Rubber has sued EMG, Maglietta and Pfeffer fornegligence and negligent misrepresentation, and EMG alone for breach ofcontract. Jurisdiction is based upon diversity of citizenship and Mainelaw applies.

The Magistrate Judge concluded that the District of Maine lackspersonal jurisdiction over the two individuals — Maglietta for lackof substantial contacts, and Pfeffer because of the so-called fiduciaryshield rule, inasmuch as all herPage 3Maine contacts were on behalf of her employer, EMG. As for EMG, theMagistrate Judge concluded that the Maine Law Court would extend theprohibition it has announced on tort-based economic loss recovery for thesale of goods (the so-called economic loss doctrine) to servicecontracts. But he concluded that the Law Court would exempt from thedoctrine professional services contracts like that here. He alsoconcluded that negligent misrepresentation is an independent tort andexempt from the economic loss doctrine. He therefore denied EMG's motionfor summary judgment on both tort claims. (No motion was made on thebreach of contract claims.)

I accept some parts of the Magistrate Judge's Recommended Decisions andreject other parts. Specifically, on personal jurisdiction it is not forthis federal court to apply the fiduciary shield exemption to narrow thebroad scope of personal jurisdiction Maine law asserts. On economic loss,I disagree that negligent misrepresentation is exempt from the doctrinein Maine. Although there is no guidance from the Law Court, I do agreewith the Magistrate Judge that the Maine Law Court probably would applythe doctrine to service contracts. I disagree that the Law Court wouldexempt an environmental engineering services contract like that here.


I AFFIRM the Magistrate Judge's recommendation on the defendantMaglietta and GRANT his motion to dismiss on personal jurisdictiongrounds forPage 4insufficient contacts with the State of Maine.

I REJECT the Magistrate Judge's recommendation to dismiss the defendantPfeffer for lack of personal jurisdiction. Pfeffer clearly had therequisite minimum contacts with the State of Maine. But she asserts thatshe had those contacts only in her capacity as an employee of EMG, notfor any personal reasons. The so-called fiduciary shield doctrine,adopted by a number of courts, "generally precludes a court fromexercising personal jurisdiction over a non-resident corporate agent foracts performed on behalf of his employer." LaVallee v. Parrot-Ice DrinkProds, of Am., Ltd., 193 F. Supp.2d 296, 301 (D. Mass. 2002). From thefirst creation of the fiduciary shield doctrine, however, it has beenrecognized as based upon equitable principles, not constitutionalrequirements. See id.; Columbia Briargate Co. v. First Nat'l Bank inDallas. 713 F.2d 1052, 1056 (4th Cir. 1983); Marine Midland Bank. N.A.v. Miller. 664 F.2d 899, 902 n.3 (2d Cir. 1981); United States v.Montreal Trust Co., 358 F.2d 239, 242-43 (2d Cir. 1966). In thisdiversity case, I am governed by Maine law of personal jurisdiction, aslimited by the United States Constitution. Maine has stated in itsstatutes: [T]o insure maximum protection to citizens of this State, [this section] shall be applied so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the United States Constitution, 14th amendment.14 M.R.S.A. § 704-A(1) (2003). Likewise, many Law Court opinionsconfirm that personal jurisdiction extends to the utmost limit that theUnited StatesPage 5Constitution permits. E.g., Jackson v. Weaver, 678 A.2d 1036 (Me. 1996);Christiansen v. Smith, 598 A.2d 176 (Me. 1991). Therefore, whateverequitable attractions the fiduciary shield doctrine may have, since it isnot constitutionally required I cannot apply it to limit the scope ofMaine personal jurisdiction. I recognize that some other state courtswith expansive jurisdictional language like Maine's have proceeded toapply the fiduciary shield doctrine. E.g., Rollins v. Ellwood.565 N.E.2d 1302, 1318 (Ill. 1990). But Maine has never made anysuggestion that it would limit the scope of its personal jurisdiction onanything but federal constitutional grounds, and there is no basis for meas a federal judge to predict that the Maine Law Court would dootherwise. See Porter v. Nutter, 913 F.2d 37, 41 (1st Cir. 1990) ("Wemay, perhaps, be unadventurous in our interpretation of [state] law, buta plaintiff who seeks out a federal venue in a diversity action shouldanticipate no more."); Martel v. Stafford, 992 F.2d 1244, 1247 (1st Cir.1993) ("[A] diversity court, with exceptions not germane to this case,must take state law as it stands."). Accordingly, I DENY the defendantPfeffer's motion to dismiss for lack of personal jurisdiction.


In Oceanside at Pine Point Condo. Owners Ass'n v. Peachtree Doors,Inc., 659 A.2d 267 (Me. 1995), the Law Court adopted the economic lossdoctrine. (The Court has not addressed the issue since.) Peachtreeinvolved allegedly defective condominium unit windows and doors thatleaked. Unhappy unitPage 6owners sued the supplier on various tort theories. The Law Courtaffirmed the trial court's ruling that claims of negligence, negligentmisrepresentation and product liability could not proceed against thesuppliers. The Court reasoned that the defects harmed only the productpurchased, not other property or people, and thus that any legitimateclaims were only for breach of contract or warranty. According to the LawCourt, "The maintenance of product value and quality is precisely the purpose of express and implied warranties." A situation where the injury suffered is merely the "failure of the product to function properly," is distinguishable from those situations, traditionally within the purview of tort, where "the plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or property."Peachtree. 659 A.2d at 270 (internal citations omitted). I agree with theMagistrate Judge that the Law Court's reasoning in Peachtree extendsbeyond purchases of property to service contracts as well.2

In Peachtree, the Law Court also affirmed the application of theeconomic loss doctrine to negligent misrepresentation, id. at 270, 273,and therefore I disagree with the magistrate Judge on that score. IGRANT summary judgment to the defendant EMG on Count III seeking tortdamages for negligent misrepresentations allegedly contained in thereport contracted for by Maine Rubber. Accord Duquesne Light Co. v.Westinghouse Elec. Corp., 66 F.3d 604,Page 7620 (3d Cir. 1995); Apollo Group. Inc. v. Avnet. Inc., 58 F.3d 477, 480(9th Cir. 1995); Bailey Farms. Inc. v. Nor-Am Chem. Co., 27 F.3d 188, 191(6th Cir. 1994); but see Nota Constr. Corp. v. Keyes Assocs., Inc.,694 N.E.2d 401, 405 (Mass. App. Ct. 1998); PK Ventures. Inc. v. RaymondJames & Assocs., Inc., 690 So.2d 1296, 1297 (Fla. 1997); S. Tourek,T. Boyd and C. Schoenwetter, Bucking the "Trend": The Uniform CommercialCode, the Economic Loss Doctrine, and Common Law Causes of Action forFraud and Misrepresentation. 84 lowa L. Rev. 875, 938(1999).

The difficult question is whether Maine would carve out an exception tothe economic loss doctrine for professional services contracts.3Courts that do create an exception express concern over the eliminationof tort recovery for professional malpractice, and cite the need for suchremedies against lawyers and accountants. Hydro Investors, Inc. v.Trafalgar Power, Inc., 227 F.3d 8, 24-25 (2d Cir. 2000); Sommer v. Fed.Signal Corp., 79 N.Y.2d 540, 551-52 (N.Y. 1992); Moransais v. Heathman.744 So.2d 973, 976 (Fla. 1999); 17 Vista Fee Assocs. v. Teachers Ins.& Annuity Ass'n of America. 693 N.Y.2d 554, 559-60 (N.Y. App. Div.1999).4 Other courts recognize that concern by simply limiting theexception to professional services contracts that involve a fiduciary orextra-contractual relationPage 8(like attorney/client). See, e.g., Jin Ok Choi v. Chase Manhattan Mortg.Co., 63 F. Supp.2d 874, 883-85 (N.D. Ill. 1999); Collins v. Reynard. 607N.E.Zd 1185, 1188-89 (Ill. 1992). (This environmental engineeringservices contract involves no fiduciary relationship.) Other courtscreate no exception at all, at least in the instances that have comebefore them. See, e.g., Joseph v. David M. Schwarz/Architectural Servs.,P.C., 957 F. Supp. 1334, 1339-40 (S.D.N.Y. 1997); City Express. Inc. v.Express Partners. 87 Haw. 466, 468 (Haw. 1998); 2314 Lincoln Park WestCondo. Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346,352-53 (Ill. 1990); American Towers Owners Ass'n v. CCI Mechanical,Inc., 930 P.2d 1182, 1189-90 (Utah 1996).

There is nothing in Peachtree that gives any hint where the Law Courtmight come out on this issue. But whatever the applicability of theeconomic loss doctrine to suits against lawyers and accountants, thelogic of Peachtree encompasses the relationship here.5 These were twocommercial entities able toPage 9bargain over the terms of their agreement, and they entered into awritten contract to govern their relationship.6 There was no risk ofharm either to people or to other property. The critical issue here, asinPeachtree. is value and quality of what was purchased. FollowingPeachtree, I conclude that there is no reason not to leave Maine Rubberand EMG to their bargain. It bears noting that such an outcome does notmean there is no relief. Maine Rubber still has the traditional recoursefor breach of contract and any damages it can prove under contract lawstandards, given the contract it entered into.7 I therefore GRANTsummary judgment to EMG on Count I, negligence.

Pfeffer has not moved for summary judgment on either tort count,probably because EMG's motion was filed before Pfeffer was ever joined asa party. It seems clear that the negligent misrepresentation claim cannotsurvive against her in light of my ruling on EMG's motion. It also seemsunlikely that the negligencePage 10claim against her cannot survive the economic loss doctrine. See GeraldM. Moore & Son. Inc. v. Drewry. 467 S.E.Zd 811, 813 (Va. 1996) (evenif the agent's negligence is established, absent privity of contract,economic loss doctrine precludes the recovery of damages based oneconomic loss alone); Crawford v. Deutsche Bank AG. 244 F. Supp.2d 615,617 (E.D. Va. 2003); Restatement, Agency 2d, § 357 (2003) (agent whointentionally or negligently fails to perform duties is not liable to aperson whose economic interests are thereby harmed); Rice v. BerkwoodCorp., 56 Va. Cir. 493, *4 (Va. Cir. Ct. 2001) (citing Gerald M. Moore:Restatement, Agency 2d, § 357). See also Am. United Logistics, Inc.v. Catellus Dev. Corp., 319 F.3d 921, 927 (7th Cir. 2003) (barringplaintiff's tort recovery from defendant's subcontractors under theeconomic loss doctrine). Here, no employee tortious conduct is alleged inthe complaint that would give rise to liability independent of the factthat a contract exists between EMG and Maine Rubber. See Juarez v.Chevron USA. 911 F. Supp. 257, 259-60 (S.D. Tex. 1995). See also AmericanIns. Co. v. Material Transit. Inc., 446 A.2d 1101. 1104 (Del. Super. Ct.1982).

The plaintiff Maine Rubber shall show cause within two weeks why Ishould not grant summary judgment to Pfeffer on the tort counts.

Accordingly, I GRANT summary judgment to the defendant EMG on Count I(negligence) and Count III (negligent misrepresentation) of the AmendedPage 11Complaint. Count II, the breach of contract claim made against EMGalone, shall proceed.


The defendant Maglietta's motion to dismiss is GRANTED.

The defendant Pfeffer's motion to dismiss is DENIED.

EMG's motion for partial summary judgment on Counts I and III of theAmended Complaint is GRANTED.

The plaintiff Maine Rubber is ordered to SHOW CAUSE by December 31,2003, why I should not enter summary judgment to Pfeffer on Counts I andII.



1. In my previous order dated December 18, 2003 (and which I nowamend), I stated that Maine Rubber had proceeded to purchase the realestate. That was an unwarranted inference. In fact, Maine Rubberterminated its purchase and sale contract to buy the DuraStone propertyprior to the scheduled closing. Letter from Def.'s Counsel Sigmund D.Schultz of 12/24/03 (Docket No. 73), accord PL's Memo, in Opposition toDef.'s Motion to Exclude, at 2 (Docket No. 51). My earlier misstatement,however, does not affect the analysis.

2. I recognize that in Fireman's Fund Ins. Co. v. Childs,52 F. Supp.2d 139 (D. Me. 1999), Judge Carter found it impossible topredict what the Law Court would do in a professional services contractcase, and certified the issue to the Law Court. However, the partiessettled the case before any ruling was obtained.

3. Maine Rubber has not argued that the damages here fit within theexception for damages to "other property."

4. Some of those cases, however, involve conduct by defendants thatoccurred before a contractual relationship existed or that occurredoutside the scope of the contract. E.g., Hydro Investors, 227 F.3d at22. See also McCutcheon v. Kidder, 938 F. Supp. 820, 823-24 (S.D. Fla.1996).

5. Peachtree cited approvingly an Illinois case that describedunrecoverable economic loss as "damages for inadequate value, costs ofrepair and replacement of defective product, or consequent loss ofprofits — without any claim of personal injury or damage to otherproperty." 695 A.2d at 270 n.4 (citing Moorman Mfg. Co. v. Nat'l TankCo., 435 N.E.2d 443, 449 (Ill. 1982)). It also cited approvingly a U.S.Supreme Court admiralty case describing why economic loss should not berecovered in tort where there is a contractual relationship: "when aproduct injures itself, the commercial user stands to lose the value ofthe product, risks the displeasure of its customers who find that theproduct does not meet their needs, or, as in this case, experiencesincreased costs in performing a service. Losses like these can beinsured. Society need not presume that a customer needs specialprotection." Id., n.5 (citing East River SS Corp. v. TransamericaDelaval, Inc., 476 U.S. 868, 871-72 (1986)). All these arguments applyhere, where the product is the service provided. I do not foreclose thepossibility that in another case a complaint could be written (e.g.,possibly by alleging damage to other property) to fall outside the scopeof the economic loss doctrine.

6. Such a relationship with equal bargaining power is quite differentthan one with a substantial difference in hierarchal status, like therelationship between a lawyer or accountant and his or her client, wherethe source of the duty is not defined by an arm's length contract. Cf.Jin Ok Choi, 63 F. Supp.2d at 884 (citing Congregation of Passion, HolyCross Province v. Touche Ross & Co., 636 N.E.Zd 503, 514 (Ill.1994)). The relationship between Maine Rubber and EMG is not fiduciary(i.e., standing in a special relationship of trust) or extra-contractualin nature. EMG had no mandate to observe a level of professionalcompetence that existed independently or outside the contractuallanguage. Cf. id. Although a fiduciary relationship may occur under somefactual circumstances, the summary judgment record does not establish aclose relationship of trust and confidence between Maine Rubber and EMGthat would compel Maine Rubber to rely heavily on judgments of EMGtranscending the contractual expectations. Cf. id. at 884-85.

7. Contract law allows for foreseeable damages arising from thebreach (though these may be limited by the contractual language). Tortlaw recovery may permit consequential damages. Which is greater dependsupon the factual circumstances.

8. Note that my previous order was dated December 18, 2003, and,thus, the show cause deadline of December 31, 2003 is not inconsistentwith that date.Page 1

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