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NS Transportation Brokerage Corporation v. Louisville Sealcoat Ventures, LLC

United States District Court, W.D. Kentucky, Louisville Division

March 9, 2015

NS TRANSPORTATION BROKERAGE CORPORATION, Plaintiff,
v.
LOUISVILLE SEALCOAT VENTURES, LLC d/b/a LOUISVILLE SEALCOAT COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER

JOSEPH H. McKINLEY, Jr., Chief District Judge.

This matter is before the Court on Defendant Louisville Sealcoat Ventures, LLC's ("LSV") Motion for Partial Summary Judgment [DN 43]. Fully briefed, this matter is ripe for decision. For the following reasons, the Motion for Partial Summary Judgment is DENIED.

I. BACKGROUND

In the fall of 2011, Plaintiff NS Transportation Brokerage Corporation ("NSTBC") and Defendant LSV entered into a contract[1] for LSV to initially prepare, and then sealcoat and stripe the surface of a large asphalt lot located at NSTBC's Shelbyville, Kentucky Automotive Service Hub ("Yard"). NSTBC alleges that as of May 2012, the work was not completed by LSV, and that the work that was performed was deficient and non-compliant. (Compl. [DN 1] ¶ 10.) Thereafter, NSTBC terminated its contract with LSV for failing to remedy the work pursuant to the express terms of the contract. Prior to termination of the contract, NSTBC had paid LSV $160, 940.00 in progress payments. (Cohen Decl. Ex. H [DN 44-12].)

On November 19, 2012, NSTBC filed this action based on diversity jurisdiction against LSV alleging claims for breach of contract and breach of warranty, or in the alternative, for negligence. (Compl. [DN 1] ¶¶ 3, 17-35.) NSTBC alleges that LSV's work was deficient: that the sealcoat application was inadequate, as the sealcoat was too thin and in some places missing; that due to LSV's failure to properly prepare the Yard or perform the sealcoat application, the striping paint applied was flaking off and the sealcoat was crumbling; that the striping lines were applied with inconsistent widths, when a uniform 4-inch width was required by the contract; and that the stenciling was not completed to contract specifications. (Id. ¶¶ 10-14.) NSTBC seeks damages for the cost to correct LSV's allegedly substandard work and complete the project.

On September 22, 2014, Defendant filed this Motion for Partial Summary Judgment [DN 43] to dismiss Count 3 of NSTBC's Complaint, the negligence claim. Defendant asserts that the Court must dismiss Plaintiff's negligence claim because it is barred by the "economic loss rule."

II. STANDARD OF REVIEW

Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence... of a genuine dispute." Fed.R.Civ.P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson, 477 U.S. at 252.

In a diversity action, this Court must apply the substantive law of Kentucky "in accordance with the then-controlling decision of [Kentucky's highest court]." Pedigo v. UNUM Life Ins. Co. of Am., 145 F.3d 804, 808 (6th Cir. 1998) (citation and internal quotation marks omitted). Where Kentucky courts have not decided the precise issue at hand, this Court must determine the path that the state would likely follow. Overstreet v. Norden Labs., Inc., 669 F.2d 1286, 1290 (6th Cir. 1982).

III. DISCUSSION

Defendant contends that Plaintiff's negligence claim is barred by the economic loss rule. Plaintiff counters that under Kentucky law, the economic loss rule does not apply to contracts for services, and that the contract at issue here is a contract for services. Therefore, according to Plaintiff, the economic loss rule does not apply here.

"The economic loss rule' prevents the commercial purchaser of a product from suing in tort to recover for economic losses arising from the malfunction of the product itself, recognizing that such damages must be recovered, if at all, pursuant to contract law." Giddings & Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011) (emphasis added). Thus, the economic loss rule permits recovery for personal injury or damage to property other than the product purchased, but denies recovery for damage to the product itself. Id. at 738. Judge Heyburn has explained that "[v]irtually every classic description of the economic loss rule pertains to and often limits its application to the sale of products. The cases make this distinction in order to preserve the distinction between the remedies available under the U.C.C. and those available in tort." Louisville Gas & Elec. Co. v. Cont'l Field Sys., Inc., 420 F.Supp.2d 764, 769 (W.D. Ky. 2005).

The economic loss rule marks the border between tort and contract law. Where tort law, primarily out of a concern for safety, fixes the responsibility for a defective product directly on the parties responsible for placing the product into the stream of commerce, contract law ...

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