DONALD MENCHHOFER, individually and as president of Fabri-Tech, Inc., and
FABRI-TECH, INC., Plaintiffs/Counterclaim Defendant, -vs- HONEYWELL, INC.,
Defendant/Counterclaim Plaintiff,
Cause No. IP-99-1674-C-B/S
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA, INDIANAPOLIS
DIVISION
2002 U.S. Dist. LEXIS 260
January 7, 2002, Decided
CASE SUMMARY
PROCEDURAL POSTURE: Defendant corporation brought a motion for summary judgment
in plaintiffs, corporation and president's, suit alleging negligence, breach of
contract, fraud, and wanton and willful misconduct.
OVERVIEW: Plaintiffs alleged that an alarm system it had purchased from
defendant did not sound a timely fire alert causing destruction of plaintiff's
facilities. Plaintiffs asserted that a provision in the contract governing
plaintiff and defendant's relationship that barred plaintiff's claims for breach
of contract and negligence was unconscionable. The court found that the
exculpatory clause in the contract was enforceable and that such provision
barred plaintiffs' negligence and contract claims against defendant. The court
found that lacking competent evidence to illustrate that plaintiffs delegated
their alarm system responsibilities to defendant, plaintiffs could not rely on
alleged violations of the Uniform Fire Code to establish fraud. The court
rejected plaintiffs' attempt to frame a constructive fraud claim because
plaintiffs failed to show that defendant had a duty to plaintiffs or that
defendant made deceptive material misrepresentations or remained silent when it
had a duty to speak.
OUTCOME: The court granted defendant's motion for summary judgment on
plaintiffs' claims of negligence, breach of contract, fraud, and wanton and
willful misconduct.
OPINION BY: Sarah Evans Barker
OPINION: ENTRY
This cause comes before the Court on Defendant's motion for summary judgment and
motion to strike. For the following reasons, the Court grants the motions.
Background
Plaintiff Fabri-Tech, Inc. (Fabri-Tech), a business in Fishers, Indiana, bought
a burglar and fire alarm system from Defendant Honeywell, Inc. (Honeywell) in
1980. On October 17, 1980, Fabri-Tech entered into an installation and service
agreement with Honeywell, which agreement provides for Honeywell's monitoring of
Fabri-Tech's fire and burglar alarm system. The initial monthly charge for such
service was $ 40.00.
Included in the agreement for monitoring service was the following provision:
It [*2] is understood and agreed by the parties hereto that Contractor is not an
insurer and that insurance, if any, covering personal injury and property loss
or damage on Subscriber's premises shall be obtained by the Subscriber; that the
Contractor is being paid for the installation and maintenance of a system
designed to reduce certain risks of loss and that the amounts being charged by
the Contractor are not sufficient to guarantee that no loss will occur; that the
Contractor is not assuming responsibility for any losses which may occur even if
due to Contractor's negligent performance or failure to perform any obligation
under this Agreement. THE CONTRACTOR DOES NOT MAKE ANY REPRESENTATION OR
WARRANTY, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS, THAT THE
SYSTEM OR SERVICE SUPPLIES MAY NOT BE COMPROMISED, OR THAT THE SYSTEM OR
SERVICES WILL IN ALL CASES PROVIDE THE PROTECTION FOR WHICH IT IS INTENDED.
Since it is impractical and extremely difficult to fix actual damages which may
arise due to the faulty operation of the system or failure of services provided,
if, notwithstanding the above provisions, there should arise any liability on
the part of the Contractor, such [*3] liability shall be limited to an amount
equal to one half the annual service charge provided herein or $ 250, whichever
is greater. This sum shall be complete and exclusive and shall be paid and
received as liquidated damages and not as a penalty. . . .
Subscriber agrees to and shall indemnify and save harmless the Contractor, its
employees and agents, for and against all third party claims, lawsuits and
losses alleged to be caused by the improper operation of the system, whether due
to defects in the system or acts or omissions of the Contractor in receiving and
responding to alarm signals.
Compl., Ex. A, P 7; Def.'s Motion for Summ. J., Ex. 1, P 7.
Through the years, Honeywell monitored Fabri-Tech's system. On May 22, 1998,
Terry Harris (Harris), a Honeywell representative, responded to a service call
from Fabri-Tech. According to the report generated as a result of the service
call, when Harris left Fabri-Tech that day, Fabri-Tech's "system was tested and
left in good working order." Def.'s Reply Br., Harris Aff., Ex. A.
On December 25, 1998, a fire broke out at Fabri-Tech. According to Honeywell's
computer-generated documentation, the Fabri-Tech burglar system first [*4]
alerted the Honeywell monitoring center of a problem in zone one of the building
at 3:02 p.m. The burglar alarm in zone one sounded again at 3:03 p.m., and a
Honeywell dispatcher acknowledged the alarm and notified the Hamilton County
emergency dispatcher at that same time. Judge Aff. P 13, Def.'s Ex. A. At 3:04
p.m., while the Honeywell dispatcher was on the telephone with the emergency
dispatcher, the zone one burglar alarm and the zones three and four fire alarms
activated. Judge Aff. P 14. During the phone conversation -- at 3:05 p.m. -- the
dispatcher relayed this additional information to the Hamilton County emergency
dispatcher.
Unfortunately, the fire totally destroyed Fabri-Tech's office and manufacturing
facilities. On October 29, 1999, Fabri-Tech and Donald Menchhofer (Menchhofer),
individually and as president of Fabri-Tech, sued Honeywell in federal court
relying on diversity jurisdiction. The Plaintiffs lodged claims of negligence,
breach of contract, fraud and wanton and willful misconduct, and they sought
punitive damages. According to Plaintiffs, Fabri-Tech's alarm system did not
sound a timely fire alert and the delay caused Fabri-Tech's loss. On March 16,
2001, Honeywell [*5] filed a summary judgment motion and a motion to strike the
affidavit of Plaintiffs' expert. We turn now to a discussion of these motions.
Discussion
HN1Summary judgment is appropriate when there are no genuine issues of material
fact, leaving the moving party entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(c). While facts are viewed in the light most favorable to the
nonmoving party, there is an affirmative burden of production on the nonmoving
party to defeat a proper summary judgment motion. Baucher v. Eastern Ind. Prod.
Credit Ass'n, 906 F.2d 332, 334 (7th Cir. 1990) (following Celotex Corp. v.
Catrett, 477 U.S. 317, 323-24, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)). Before
the Court denies summary judgment, it must be determined whether there is
sufficient evidence for a jury to find a verdict in favor of the nonmoving
party. Id. (following Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 91
L. Ed. 2d 202, 106 S. Ct. 2505 (1986)).
Preliminarily, the Court turns to address two issues that narrow the scope of
Plaintiffs' case. First, Honeywell contends in its motion and brief that any
claims based upon alleged [*6] defects of the alarm system and the installation
of the system are barred by the ten-year statutes of repose found in the Product
Liability Act, Indiana Code § 34-20-3-1, and the Real Estate Improvements
Statute, Indiana Code § 32-15-1-2, respectively. In Plaintiffs' opposition
brief, they concede this point but argue that most of their claims are based on
Honeywell's "ongoing monitoring, supervision and maintenance of the system,"
Pl.'s Opp'n Br. at 17, rather than on defects in the system and its
installation. Consequently, we find summary judgment in favor of Honeywell
appropriate to the extent Plaintiffs' Complaint includes allegations arising
from alleged defects in the system and from Honeywell's installation of the
alarm system. We consider, infra, Plaintiffs' claims based on Honeywell's
monitoring and maintenance activity.
Second, Honeywell argues that Menchhofer's individual capacity claims against
Honeywell are doomed, In particular, Defendant points out that the agreement
forming the foundation of this action is between Fabri-Tech and Honeywell only;
Menchhofer, individually, is not a party. Moreover, Honeywell focuses on the
contract language, quoted supra on [*7] page two, wherein Fabri-Tech indemnifies
and holds Honeywell harmless from third-party claims. Plaintiffs fail to counter
Honeywell's contentions, which we infer to be an expression of Plaintiffs'
recognition of the validity of Honeywell's position. The Court, therefore,
grants Honeywell's motion for summary judgment to the extent it seeks judgment
on Menchhofer's individual claims against it. n1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 Honeywell's counterclaim in this case arises from the claims Menchhofer
lodged in his individual capacity. Because we grant summary judgment in favor of
Honeywell on such claims, Honeywell's counterclaim is moot.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
We proceed now to consider the matters with which Fabri-Tech n2 does take issue.
According to the Defendant, the contract language bars Fabri-Tech's claims for
breach of contract and negligence. In support of this argument, Honeywell relies
on paragraph seven of the contract, which clearly exculpates Honeywell from such
claims. See, supra, at 1-2. Fabri-Tech does not argue that this language does
not [*8] encompass its contract and negligence claims. Rather, Plaintiff asserts
that this provision of the contract is unconscionable and, thus, the Court
should refuse to enforce it. We disagree.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n2 In view of our decision to enter summary judgment in favor of Honeywell on
Menchhofer's individual capacity claims, reference hereafter will be to Fabri-Tech
or to Plaintiff in the singular.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Looking to Indiana law, as we must in a case based on diversity jurisdiction, we
are convinced that the exculpatory clause in the monitoring service agreement is
not unenforceable. In General Bargain Center v. American Alarm Co., Inc., 430
N.E.2d 407, 411 (Ind. Ct. App. 1982), the Indiana Court of Appeals discussed
Indiana's position on exculpatory clauses.
HN2
Indiana . . . recognizes exculpatory clauses. Parties are permitted to make such
contracts so long as they are knowingly and willingly made and free from fraud.
No public policy exists to prevent such contracts. However, exceptions exist
where the parties [*9] have unequal bargaining power, the contract is
unconscionable, or the transaction affects the public interest such as
utilities, carriers, and other types of businesses generally thought to be
suitable for regulation or which are thought of as a practical necessity for
some members of the public. Weaver v. American Oil Co., (1971) 257 Ind. 458, 276
N.E.2d 144; LaFrenz v. Lake County Fair Board, (1977) 172 Ind. App. 389, 360
N.E.2d 605.
Id.
More recently, in Indiana Dep't of Transp. v. Shelly & Sands, Inc., 756 N.E.2d
1063 (Ind. Ct. App. 2001), the court, reiterated its position, explaining that
courts in Indiana recognize exculpatory clauses in contracts and presume that
the contracts represent the freely bargained agreement of the parties. Trimble
v. Ameritech Pub., Inc., 700 N.E.2d 1128, 1129 (Ind. 1998). No public policy
exists to prevent contracts containing exculpatory clauses. Pinnacle Computer
Servs., Inc. v. Ameritech Pub., Inc., 642 N.E.2d 1011, 1014 (Ind. Ct. App.
1994).
756 N.E.2d at 1072. The Shelly & Sands court reiterated General Bargain Center's
[*10] three exceptions to exculpatory clauses.
Turning to the case before us, our first task is to consider whether Menchhofer,
on behalf of Fabri-Tech, knowingly and willingly agreed to the exculpatory
clause. Fabri-Tech opines that Honeywell has the burden of demonstrating it
brought the clause to Menchhofer's attention. Honeywell asserts it does not have
such a burden unless and until Menchhofer proves that the contract is an
unconscionable one. Honeywell is correct.
In Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144, 148 (Ind. 1972),
the Indiana Supreme Court held:
HN3
When a party can show that the contract, which is sought to be enforced, was in
fact an unconscionable one, due to a prodigious amount of bargaining power on
behalf of the stronger party, which is used to the stronger party's advantage
and is unknown to the lesser[] party, causing a great hardship and risk on the
lesser party, the contract provision, or the contract as a whole, if the
provision is not separable, should not be enforceable on the grounds that the
provision is contrary to public policy. The party seeking to enforce such a
contract has the burden of showing that the provisions [*11] were explained to
the other party and came to his knowledge and there was in fact a real and
voluntary meeting of the minds and not merely an objective meeting.
Id. (emphasis in original).
As this passage illustrates, Honeywell does not have to demonstrate that it
explained the provision to Menchhofer unless and until Menchhofer first shows
that Honeywell had an inordinate amount of bargaining power and that it used
such bargaining power to its advantage. Menchhofer has demonstrated nothing of
the kind. Not only does the record illustrate that Menchhofer shopped around for
Fabri-Tech's alarm system, but also the evidence reveals that Menchhofer,
himself, is a sophisticated business person. Menchhofer graduated from Purdue
University with a bachelor's degree in mechanical engineering, and he also has
completed between nine and twelve hours of postgraduate work at Purdue. Def.'s
Ex. C, Menchhofer Dep. at 5-6. Menchhofer has served corporations in such
professional capacities as vice president and executive vice president Id. at
8-10. As executive vice president of Hoosier Tarpaulin, Menchhofer had
responsibility for "overall management of the entire company." Id. [*12] at
10-11. Hoosier Tarpaulin employed approximately 120 employees when Menchhofer
first began working there and, by the time he left Hoosier Tarpaulin, its work
force numbered between 200-300. Id. at 11. Moreover, in addition to owning Fabri-Tech,
Menchhofer, is the sole proprietor of Fabri-Tech Mills, a distribution company;
one of four owners of Institutional Products, a manufacturing business; and one
of four family members who own Menchhofer SA, a Costa Rican manufacturing
company. Id. at 23-30.
We find that Menchhofer has failed to establish that Honeywell had a "prodigious
amount of bargaining power" and, thus, Honeywell need not demonstrate that its
representative specifically explained the exculpatory clause to Menchhofer.
Significantly, in his affidavit, Menchhofer avers only that no Honeywell
representative "ever informed, discussed, or brought to Affiant's attention the
exculpatory clause contained in paragraph 7 of the Installation and Service
Agreement." Menchhofer Aff. P 25. Conspicuously missing from Menchhofer's
affidavit is an averment that he was unaware of the existence of the exculpatory
clause. In sum, we find that Menchhofer has failed to establish either [*13]
that Honeywell had a "prodigious amount of bargaining power" or that he was
unaware of the exculpatory clause.
Our preceding discussion not only dooms Fabri-Tech's argument that Defendant
failed in its duty to prove that Honeywell brought the exculpatory clause to
Plaintiff's attention, but also demonstrates that Fabri-Tech cannot satisfy the
first of the three exceptions Indiana has to enforcement of exculpatory clauses
-- the existence of unequal bargaining power. We proceed to consider the second
exception, one based on unconscionability.
HN4Unconscionability jurisprudence in Indiana has two branches: substantive and
procedural. DiMizio v. Romo, 756 N.E.2d 1018, 1023 (Ind. Ct. App. 2001) (citing
Hahn v. Ford Motor Co., Inc., 434 N.E.2d 943, 951 (Ind. Ct. App. 1982)).
Substantive unconscionability involves oppressively one-sided and harsh terms.
Procedural unconscionability encompasses the manner and process by which the
terms become part of the contract. Id. The DiMizio court described substantive
unconscionability.
"When the weaker party, in need of goods or services, is not in a position to
shop around for better terms, either because [*14] the author of the standard
contract has a monopoly or the other competitors use the same contract, the
parties are not in an equal bargaining position and application of the doctrine
. . . is appropriate."
756 N.E.2d at 1024 (quoting Terry v. Ind. State Univ., 666 N.E.2d 87, 93 (Ind.
Ct. App. 1996) (citing Weaver v. Am. Oil Co., 257 Ind. 458, 464, 276 N.E.2d 144,
146 (1971))).
Application of these principles to the facts in the present case persuades the
Court that the exculpatory clause is not substantively unconscionable. First,
plaintiffs do not assert that Menchhofer is the weaker party. Indeed, our
discussion supra, wherein we note that Menchhofer is a sophisticated business
person, weighs against any such assertion. Furthermore, Menchhofer has not even
attempted to establish the second element of the test for substantive
unconscionability; that is, he has not argued either that Honeywell has a
monopoly or that Honeywell's competitors use the same contract. Importantly,
Menchhofer acknowledges that he had three separate alarm companies submit
estimates and that he selected Honeywell even though Honeywell was not the least
[*15] expensive. There is nothing in the record from which we can infer that
Menchoffer was not "in a position to shop around" for an alarm system and
monitoring service. Thus, we find no substantive unconscionability.
The DiMizio court explained that issues of procedural unconscionability "arise
from irregularities in the bargaining process or from characteristics peculiar
to one of the parties." DiMizio, 756 N.E.2d at 1024. Menchhofer appears to
launch no argument pertaining to this prong of the doctrine of unconscionability.
The Court, itself, gleans nothing from Menchhofer's affidavit suggesting
irregularities in the bargaining process. The record reveals only that
Menchhofer spoke with three companies about an alarm system and opted to go with
Honeywell "because Honeywell held itself out as an expert in . . . burglar and
fire alarm systems and due to Honeywell's national presence in the burglar and
fire alarm industry." Menchhofer Aff. P 11. Menchhofer alleges nothing amiss.
Having found the doctrine of unconscionability inapplicable to the facts of this
case, we are left only to consider the third exception to exculpatory clauses --
that is, whether, in accordance [*16] with Indiana law, the transaction between
Honeywell and Fabri-Tech affected the public interest.
In General Bargain Center, 430 N.E.2d 407, the plaintiff sued the alarm company
with which plaintiff had contracted after the alarm company failed properly to
investigate plaintiff's business premises. Id. at 408. Plaintiff alleged that
defendant's negligent investigation resulted in the theft of plaintiff's
jewelry. Id. Although plaintiff did not provide the court with "adequate
citation of authority or cogent argument as required" by the Indiana rules, the
court nevertheless addressed the merits of plaintiff's position. Id. The court
found that such clauses -- whether denominated exculpatory clauses, limited
liability clauses or liquidated damages clauses -- generally were upheld by
appellate courts of other states. Id. at 411-12. The court further noted that
whether an exculpatory clause is unenforceable because it violates public policy
depends on the facts of each case. Id. at 412. Because plaintiffs in General
Bargain Center had failed to produce any evidence that the exculpatory clause
was against public [*17] policy, the court affirmed summary judgment in favor of
the alarm company.
In the present case, Plaintiff admits that the exculpatory clause in issue is
similar to the clause validated in General Bargain Center, Pl.s' Opp'n Br. at 6.
Nonetheless, Fabri-Tech maintains that we should refuse to enforce the
exculpatory clause because Honeywell, while performing under the monitoring
agreement, allegedly violated certain building and fire codes enacted after the
parties entered the 1980 agreement. We are of the view, however, that the
determination of unconscionability must be made with reference only to the
contract and to the circumstances as they existed at the time the parties
entered the contract. See Ind. Code § 26-1-2-302(1) ("If the court as a matter
of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the
contract . . . ."). Plaintiff points to nothing suggesting that the parties'
subsequent performance of the contract should be factored into our
consideration.
We conclude that the exculpatory clause in the contract governing the Fabri-Tech-Honeywell
relationship is enforceable and [*18] that such provision bars Fabri-Tech's
negligence and contract claims against Honeywell. We next turn to consider Fabri-Tech's
claim of fraud. HN5To succeed in a fraud claim under Indiana law, a plaintiff
must establish five elements:
(1) a false statement of past or existing material
fact (2) made with knowledge it was false or made recklessly without knowledge
of its truth or falsity (3) made for the purpose of inducing the other party to
act upon it (4) and upon which the other party did justifiably rely and act (5)
proximately resulting in injury to the other party.
Epperly v. Johnson, 734 N.E.2d 1066, 1073 (Ind. Ct. App. 2000) (citing Rice v.
Strunk, 670 N.E.2d 1280, 1289 (Ind. 1996)).
According to Plaintiff, its fraud claim arises from Honeywell's servicing of
Fabri-Tech's alarm system on May 22, 1998. Plaintiff points to the affidavit of
Thomas Cory (Cory), controller at Fabri-Tech during the relevant time period,
wherein Cory avers he "requested that [Honeywell] test the entire fire alarm
system to ensure that is was fully functional and operational." Pl.s' Ex. B,
Cory Aff. P 5. Cory also testifies that he "was informed [*19] by Honeywell's
representative that the system was tested and found to be in good working
order." Id. P 6. Plaintiff maintains that Honeywell service representative,
Harris, failed to thoroughly test the system as requested by Cory but
nevertheless told Cory that the system was working properly. To support its
assertion that Harris failed to repair the system, Plaintiff relies on the
affidavit of its expert, Jeffrey D. Zwirn (Zwirn).
In reply, Honeywell contends that Plaintiff's attempt to fashion the facts to
fit into a fraud theory is merely an effort to escape the exculpatory language
in the governing agreements. Additionally, Honeywell argues that Zwirn's
affidavit is incompetent evidence because it consists of nothing more than
unsupported speculation; thus Defendant moves to strike the affidavit.
In support of its fraud claim, Fabri-Tech points to paragraphs sixteen,
seventeen, twenty-two and twenty-three of the Zwirn affidavit. In paragraph
sixteen Zwirn asserts that Harris "improperly relocated the EOL within the
control panel." Zwirn Aff. P 16. The source to which Zwirn cites as the basis
for such statement is the security service report Harris completed on the day of
[*20] his service call to Fabri-Tech. In this report, Harris comments: "Check
battery and replace because not holding a charge. Meter AC & DC charging circuit
voltages normal. Replace battery and rewire EOL at panel for zone # 3. Also
rewire office motions as to clear zone # 1 LED." Pl.s' Ex. C-2.
A reading of this report demonstrates that it does not support Zwirn's affidavit
testimony. Contrary to Zwirn's statement, Harris does not suggest that he
"relocated" the EOL. Rather, Harris states only that he rewired the EOL. What on
first review appears to be damning testimony, paragraph sixteen of Zwirn's
affidavit flows entirely and erroneously from his (mis)use of Harris' report.
Paragraph seventeen fares no better. Therein, Zwirn attacks Harris' notation
that he tested the system and left it in good working order. Zwirn's first
challenge fails because it is based on his improper assumption that Harris
relocated the EOL. Zwirn's second challenge fails because Honeywell has
demonstrated that it is flatly wrong. We shall explain.
Zwirn correctly notes that Honeywell's monitoring station received two trouble
signals on zone four -- one at 12:24 p.m.; another at 12:34 p.m. -- and only one
restore [*21] signal at 12:34 p.m. Using this observation as his support, Zwirn
avers:
Therefore, Honeywell's own documents indicate that one of the automatic fire
alarm detectors was in an un-restored non-functional state when the Honeywell
serviceman left Fabri-Tech's premises on May 22nd 1998.
Zwirn Aff. P 17 (emphasis in original).
In response to Zwirn's testimony, Honeywell submitted the affidavit of Lowell
Ellingson (Ellingson), vice president of training at Radionics. Radionics
manufactured the alarm system control panel that is the subject of Zwirn's
affidavit. In his affidavit, Ellingson explains that
the Radionics/Omega 4000 control panel manufactured before April 1981 (hereafter
"the control") operated in a manner such that it could transmit two or more
trouble signals on a particular alarm zone or circuit followed by a single
restore signal for that zone or circuit. 5. If the control transmitted two or
more trouble signals in succession for a zone or alarm circuit followed by a
single restore signal for that zone or alarm circuit, this means that all
trouble conditions for the zone or alarm circuit were restored, and the entire
alarm zone or circuit was ready [*22] to sense another change of state such as
an alarm signal.
Ellingson Aff. PP 4-5.
Ellingson's testimony reveals that Zwirn clearly does not understand the proper
operation of the Radionics system. Therefore, his affidavit testimony is of no
value to Fabri-Tech in its quest to demonstrate that Harris made a false
statement. Zwirn also avers that Harris failed to comply with the Uniform Fire
Code when he repaired Fabri-Tech's alarm system on May 22, 1998. According to
Zwirn, Harris did not perform certain required reacceptance testing and failed
to abide by several other sections of the Uniform Fire Code. Zwirn testifies
that
on the May 22, 1998, service call Honeywell had the distinct opportunity to
advise the plaintiff that the system was inherently dangerous and destined to
not properly function but failed to take the necessary steps to notify the
plaintiff and[/]or correct the defects that were contained within the system.
Zwirn Aff. P 23. Fabri-Tech tenders this evidence in an effort to show that
Harris, although stating in his service report that the Fabri-Tech system was in
good working order, actually knew the system was bound to result in catastrophe.
[*23]
However, the fire code that Zwirn accuses Honeywell of deviating includes the
following provisions:
7-1.2 The owner or his designated representative shall be responsible for
inspection, testing, and maintenance of the system and alterations or additions
to this system. Delegation of responsibility shall be in writing, with a copy of
such delegation made available to the authority having jurisdiction.
7-1.2.1 Inspection, testing, or maintenance shall be permitted to be done by a
person or organization other than the owner when conducted under a written
contract. Delegation of responsibility shall be in writing, with a copy of such
delegation made available to the authority having jurisdiction.
Zwirn Dep., Ex. E.
Honeywell points out that Fabri-Tech has submitted nothing to demonstrate that
it delegated the responsibility for inspection, testing and maintenance of its
alarm system to Honeywell. Indeed, the installation and service agreement
initiating the relationship between Fabri-Tech and Honeywell clearly indicates
that system maintenance was not included in the contract. Menchhofer Aff., Pls'
Ex. A-1. Moreover, nothing suggests that Fabri-Tech later [*24] delegated its
duty of inspection, testing or maintenance to Honeywell. In sum, Fabri-Tech does
not submit the requisite written delegation of such responsibility. In fact, the
only written document in the record is Harris' May 22, 1998 service report,
which in no way delegates Fabri-Tech's responsibility to inspect, test or
maintain its alarm system. The report indicates only that Fabri-Tech asked
Honeywell to repair its fire alarm system, which, at that time, would not reset.
Harris responded to Fabri-Tech's request, made the necessary repairs, tested the
alarm signals to ensure he had resolved the particular problem of which Fabri-Tech
had complained, and recorded his work activity on the service report. Nothing
more was required of him.
Zwirn's opinion that "Honeywell's actions on [its] May 22, 1998 service call
were fraudulent" relies on his belief that "Honeywell acted in gross deviation
to fire codes and recognized industry standards and practices." Zwirn Aff. P 22.
Lacking competent evidence to illustrate that Fabri-Tech delegated its alarm
system responsibilities to Honeywell, Fabri-Tech cannot rely on alleged
violations of the Uniform Fire Code to establish fraud. For this [*25] reason,
we grant Honeywell's motion for summary judgment on Fabri-Tech's claim of fraud.
We turn next to Fabri-Tech's claim of constructive fraud.
HN6The elements of constructive fraud are:
(1) a duty owing by the party to be charged to the complaining party due to
their relationship; (2) violation of that duty by the making of deceptive
material misrepresentations of past or existing facts or remaining silent when a
duty to speak exists; (3) reliance thereon by the complaining party; (4) injury
to the complaining party as a proximate result thereof; and (5) the gaining of
an advantage by the party to be charged at the expense of the complaining party.
Ind. Dep't of Transp. v. Shelly & Sands, Inc., 756 N.E.2d 1063, 1077 (Ind. Ct.
App. 2001) (quoting Rice v. Strunk, 670 N.E.2d 1280, 1284 (Ind. 1996)).
Our review prompts the conclusion that Fabri-Tech has failed to establish the
elements of constructive fraud. First, as discussed supra, there is no evidence
showing that Fabri-Tech delegated to Honeywell its duty of alarm system
inspection, maintenance or testing. In the absence of such evidence, there is no
justification for imposing [*26] such a duty on Honeywell. That duty remained
with Fabri-Tech. Additionally, the record contains no evidence that Honeywell
made deceptive material misrepresentations of past or existing facts. Honeywell
monitored the system under the terms of the governing contract -- a contract, as
we earlier noted, that clearly excluded maintenance. When Fabri-Tech requested
that Honeywell repair a particular problem with the alarm system, Honeywell sent
Harris to perform the work. Harris' service report indicates that he repaired
the system and tested the signals into the central office before leaving.
Nothing even remotely suggests that Harris' report included deceptive material
misrepresentations.
Fabri-Tech appears to argue in the alternative that Honeywell had a duty to
speak but remained silent. In particular, Fabri-Tech contends that the Defendant
knew the alarm system was in a "serious condition" but nevertheless failed to
disclose such condition to Fabri-Tech. Zwirn Aff. P 2[4]. First, we already have
found that Honeywell was not responsible for the maintenance of Fabri-Tech's
alarm system. Thus, we are unpersuaded that Defendant owed Fabri-Tech such a
duty. Second, the "serious condition" [*27] to which Zwirn refers in his
affidavit must arise from his following opinion:
Honeywell knew or should have known that the subject System pursuant to its own
design and recommendations was inherently dangerous and destined to fail. The
building was approximately 21,120 square feet in size when the Honeywell fire
alarm system was installed. First the installation of three (3) smoke detectors
even if properly installed and maintained (which did not occur in this matter)
would only cover at most 2,700 square feet. Therefore, 18,240 square feet of
Fabri-Tech premises were virtually unprotected. Further, the installation of
eighteen (18) Heat thermostats does not provide the same detection capabilities
as a smoke detector, and materially weakens the System's ability to detect fire
and smoke in its early warning stages, so that any fire damages sustained could
be minimized through early intervention.
Zwirn Aff., P 10.
Even assuming that Zwirn's opinions are correct, the Court still must reject
them as a basis for a constructive fraud claim. Zwirn's statement undeniably is
tied to the design and installation of Fabri-Tech's alarm system, which
Honeywell completed in 1980. [*28] Any claims arising from the system's design
and installation are barred by the ten-year state of repose discussed supra.
Because Fabri-Tech has failed to show that Honeywell thereafter had a duty to
Fabri-Tech or that Honeywell made deceptive material misrepresentations or
remained silent when it had a duty to speak, we must reject Plaintiff's attempt
to frame a constructive fraud claim.
This leaves us only to consider Plaintiff's claim of willful and wanton
misconduct, a claim that falters for the same reasons as Plaintiff's fraud
claims. Specifically, to succeed on this claim, Fabri-Tech must demonstrate that
Honeywell either intentionally acted with reckless disregard of the natural and
probable consequences of injury or failed to act with actual knowledge that
injury would be the natural and probable consequence of such failure. See Witham
v. Norfolk and Western Ry. Co., 561 N.E.2d 484, 486 (Ind. 1990). In its
supportive argument, Fabri-Tech focuses on its position that Honeywell knew that
the alarm system was deficient but failed to inform Fabri-Tech of such
deficiency. As we concluded earlier in this Entry, however, the design and
installation of Fabri-Tech's [*29] alarm system are untimely topics for this
lawsuit. Additionally, in accordance with our finding, supra, Fabri-Tech
retained the responsibility for maintenance of its alarm system. These facts
preclude Fabri-Tech's attempt to lay blame on Honeywell.
In conclusion, the Court finds Honeywell's summary judgment motion well-taken in
all respects and we, hereby, grant the motion. This decision in favor of
Honeywell prompts us to regard as moot Defendant's counterclaim against Fabri-Tech.
Finally, based on our earlier discussions pertaining to the deficiencies in
Zwirn's affidavit -- discussions directing a conclusion that Zwirn's report is
unreliable -- we grant Honeywell's motion to strike same.
Dated this day of January 2002.
Sarah Evans Barker, Judge
United States District Court
Southern District of Indiana