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
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
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
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.
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.
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
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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.
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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.
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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.
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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.
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.
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:
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. 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