The Independent Tort Doctrine: Post Tiara Condominium

When the Florida Supreme Court wrote the Tiara Condominium opinion the legal community was unsure what the opinion meant.  Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc,., 110 So.3d 399 (Fla. 2013).  The opinion clearly states that the economic loss doctrine is applicable only in the context of products liability cases.  However, did Tiara Condominium also eliminate the contractual privity economic loss rule, which was sometimes referred to as the independent tort doctrine?  There still is not absolute clarity on this topic but the reasoned decision is that the independent tort doctrine preceded the economic loss rule and is not abolished by Tiara Condominium.

Justice Pariente’s Concurrence and the Historical Application of the Independent Tort Doctrine

Justice Pariente starts her concurrence in Tiara Condominiuum by addressing Justice Canday’s concerns, stated in his dissent, that Tiara Condominium would unsettle years of precedence that set the boundaries between tort law and contract law.  Justice Pariente’s concurrence simply points out that although the economic loss doctrine applies only in the products liability context nothing in Tiara Condominium alters any other established areas of law, i.e. the independent tort doctrine.

Although there are few cases after Tiara Condominium which address the independent tort doctrine, the independent tort doctrine is a well-established area of law with a long history.  A good discussion of the independent tort doctrine [1] is well described in Indemnity Ins. Co. of North America v. American Aviation, Inc., 891 So.2d 532, 536-537 (Fla. 2004), which states in relevant part:

The prohibition against tort actions to recover solely economic damages for those in contractual privity is designed to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing an action for economic loss in tort. See, e.g., Ginsberg v. Lennar Fla. Holdings, Inc., 645 So.2d 490, 494 (Fla. 3d DCA 1994) (“Where damages sought in tort are the same as those for breach of contract a plaintiff may not circumvent the contractual relationship by bringing an action in tort.”). Underlying this rule is the assumption that the parties to a contract have allocated the economic risks of nonperformance through the bargaining process. A party to a contract who attempts to circumvent the contractual agreement by making a claim for economic loss in tort is, in effect, seeking to obtain a better bargain than originally made. Thus, when the parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties *537 have, or could have, addressed through their contractual agreement. Accordingly, courts have held that a tort action is barred where a defendant has not committed a breach of duty apart from a breach of contract. See, e.g., Electronic Sec. Sys. Corp. v. Southern Bell Tel. & Tel. Co., 482 So.2d 518, 519 (Fla. 3d DCA 1986) (stating that “breach of contract, alone, cannot constitute a cause of action in tort … [and][i]t is only when the breach of contract is attended by some additional conduct which amounts to an independent tort that such breach can constitute negligence”); Weimar v. Yacht Club Point Estates, Inc., 223 So.2d 100, 103 (Fla. 4th DCA 1969) (“[N]o cause of action in tort can arise from a breach of a duty existing by virtue of contract.”).

The application of this principle is best exemplified by this Court’s decision in AFM Corp. v. Southern Bell Telephone & Telegraph Co., 515 So.2d 180 (Fla.1987). In that case, AFM entered into an agreement with Southern Bell Telephone and Telegraph Company that included placing AFM’s advertising in the yellow pages. See id. at 180. However, Southern Bell listed an incorrect phone number for AFM, causing AFM economic damages. See id. In asserting a claim for economic losses, AFM chose to proceed solely on a negligence theory in the trial court below rather than base its theory of recovery on any agreement between the parties. See id. at 181. In determining that AFM could not recover economic losses based on a tort theory, this Court noted that AFM’s contract with Southern Bell “defined the limitation of liability through bargaining, risk acceptance, and compensation.” Id. Because AFM had not proved that Southern Bell committed a tort independent of the breach of contract, this Court concluded that AFM had no basis for recovery in negligence. See id.

Although parties in privity of contract are generally prohibited from recovering in tort for economic damages, we have permitted an action for such recovery in certain limited circumstances. One involves torts committed independently of the contract breach, such as fraud in the inducement. For example, in HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238 (Fla.1996), this Court stated:

The economic loss rule has not eliminated causes of action based upon torts independent of the contractual breach even though there exists a breach of contract action. Where a contract exists, a tort action will lie for either intentional or negligent acts considered to be independent from the acts that breached the contract. Fraudulent inducement is an independent tort in that it requires proof of facts separate and distinct from the breach of contract.

Id. at 1239 (citations omitted); see also Pershing Indus., Inc. v. Estate of Sanz, 740 So.2d 1246, 1248 (Fla. 3d DCA 1999) (claims for economic damage based on fraud in the inducement, conversion, and civil theft were independent torts and thus actionable despite existence of contract between the parties). Another situation involves cases such as those alleging neglect in providing professional services, in which this Court has determined that public policy dictates that liability not be limited to the terms of the contract. See, e.g., Moransais v. Heathman, 744 So.2d 973, 983 (Fla.1999) (“While provisions of a contract may impact a legal dispute, including an action for professional services, the mere existence of such a contract should not serve per se to bar an action for professional malpractice.”).

Although American Aviation referred to the independent tort doctrine as the contractual privity economic loss rule, the origins of the independent tort doctrine actually predate American Aviation.  An oft cited case for the concept that fraud in the inducement is a tort independent of a breach of contract is HTP, Ltd. V. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238 (Fla. 1996).  Furthermore, HTP cites Griffith v. Shamrock Village, Inc., 94 So.2d 854 (Fla. 1956) for the proposition that a tort is precluded unless it is independent from a breach of contract.  In Griffith the court held: “But where the acts constituting a breach of contract also amount to a cause of action in tort there may be a recovery of exemplary damages upon proper allegations and proof.” Id. at 858 citing 25 C.J.S. Damages 120, pp. 716-717.  The economic loss doctrine was actually adopted by the Florida Supreme Court in Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So.2d 899 (Fla. 1987), which is well after Griffith.  However, even Florida Power & Light acknowledges the independent tort doctrine has a long historic basis predating the adoption of the economic loss rule.  Id. at 902 (“In fact, the economic loss rule has a long, historic basis originating with the privity doctrine, which precluded recovery of economic losses outside a contractual setting.”)  In short, the independent tort doctrine predates the economic loss rule.

The Post Tiara Condominium Applications of the Independent Tort Doctrine

Recent cases have applied the independent tort doctrine to bar tort claims when there is no tort independent of a breach of contract.  Lookout Mountain Wild Animal Park, Inc. v. Stearns Zooological Rescue & Rehab Center, Inc., 553 Fed. Appx. 864 (11^th Cir. 2014) (“We cannot conclude that the district court erred in granting judgment as a matter of law in favor of defendants with respect to plaintiff’s tort claims…we readily conclude that there is no evidence of a pre-contractual misrepresentation.”) Lamm v. State Street Bank and Trust, 749 F.3d 938, 947 (11^th Cir. 2014) (“Tiara may, however, have left intact a separate hurdle, namely that ‘a party still must demonstrate that…the tort is independent of any breach of contract claim.’ While the exact contours of this possible separate limitation, as applied post-Tiara, are still unlear, the standard appears to be that ‘where the breach of contract is combined with some other conduct amounting to an independent tort, the breach can be considered negligence.’”) Burdick v. Bank of America, N.A., 99 F. Supp. 3d 1372, 1378 (S.D. Fla. 2015) (“Importantly, however, the alleged duty cannot stem from a contractual relationship between the parties. ‘It is only when the breach of contract is attended by some additional conduct which amounts to an independent tort that such a breach can constitute negligence.’”)

A good post Tiara Condominium discussion of the independent tort doctrine can be found in Surety Bank v. Dunbar Armored, Inc., 2015 WL 845590 (S.D. Fla. 2015) (Slip Op.) (asserting that a breach of contract can still be a tort when the breach of contract would have been a tort at common law).  This view is adopted by the Southern District of Florida in dealing with the continued litigation of Tiara Condominium after the Florida Supreme Court issued its ruling in 2013. [2] Tiara Condominium Association, Inc. v. Marsh USA, Inc., 991 F. Supp.2d 1271 (S .D. Fla. 2014) (Holding independent tort doctrine inapplicable because the breach of duties were not contractually grounded and outside the reach of the independent tort rule.)

Since the Florida Supreme Court released Tiara Condominium there have been no Florida State appellate decisions that have expressly relied upon the independent tort doctrine to bar a tort claim.  However, there have been a few appellate decisions that have addressed the independent tort doctrine.  In Marian Farms, Inc. v. Suntrust Banks, Inc., 135 So.3d (Fla. 5^th DCA 2014) the Fifth District Court of Appeal reaffirmed the independent tort doctrine by discussing it and applying it to the facts of the case.  In Marian Farms they found torts were alleged that were independent of the depository agreement.  Likewise, U.S. Fire Insurance Co. v. ADT Security Services, Inc., 134 So.3d 477 (Fla. 2d DCA 2013) also reaffirms the independent tort doctrine by discussing and applying the doctrine.  In U.S. Fire Insurance the court also found a breach of a  tort independent of the contractual obligations and thus held the independent tort doctrine was no barrier to the tort claims.

Conclusion

In short, Tiara Condominium does not expressly overrule the independent tort doctrine. Decades of precedent had acted to confuse the independent tort doctrine and the economic loss doctrine.  The confusion was so prevalent that some Courts even held that the doctrines were synonymous.  However, Justice Pariente’s concurrence clearly asserts the independent tort doctrine is alive and well.  This makes sense as the independent tort doctrine predates the economic loss rule and Tiara Condominium does not expressly overrule the earlier adopted doctrine.  Furthermore, the Eleventh Circuit has applied the independent tort doctrine to bar a tort claim since Tiara Condominium and the Federal District Courts have applied the doctrine to bar tort claims.  Twice since Tiara Condominium, state appellate courts have discussed the independent tort doctrine and found the doctrine to be inapplicable because a tort independent of the breach of contract was pled.   If the independent tort doctrine was truly overruled by Tiara Condominium there would be no need to discuss the doctrine in these later appellate decisions.  Although an appellate decision barring a tort claim due to the independent tort doctrine would bring some clarity to this area of law, it appears the independent tort doctrine is still a valid defense to tort claims that are accompanied by identical breach of contract claims.

[1] In Florida, the contractual privity economic loss doctrine and the independent tort doctrines were often considered synonymous.  De Sterling v. Bank of America, N.A., 2009 WL 3756335 (S.D. Fla. Nov. 6, 2009) (It should be noted De Sterling was prior to Tiara Condominium)

[2] Tiara Condominium made its way to the Florida Supreme Court via an appeal to the 11^th Circuit from the Southern District of Florida.  The 11^th Circuit certified a question of law to the Florida Supreme Court.  After the Florida Supreme Court issued its ruling litigation continued in the Southern District of Florida.