Zurich American Insurance Company v. Hughes, Watters & Askanase, L.L.P.

Opinion filed July 13, 2006 Opinion filed July 13, 2006 In The Eleventh Court of Appeals __________ No. 11-05-00044-CV __________ ZURICH AMERICAN INSURANCE COMPANY, Appellant V. HUGHES, WATTERS & ASKANASE, L.L.P., Appellee On Appeal from the 164th District Court Harris County, Texas Trial Court Cause No. 2003-27371 M E M O R A N D U M  O P I N I O N Zurich American Insurance Company appeals from the trial court=s order granting summary judgment to Hughes, Watters & Askanase, L.L.P. in a legal malpractice claim. We affirm. Background Facts Piccadilly Cafeterias of Texas, Inc. operated a restaurant and was a tenant of Northline Mall in Harris County, Texas. In 1997, a corridor wall in the mall collapsed. This interrupted the mall=s utilities and power and caused the mall to be closed for repairs. Piccadilly was forced to close for approximately three months because of the repairs. Zurich was Piccadilly=s insurer, and Zurich paid Piccadilly $283,492 for a business interruption claim. Zurich hired Hughes Watters to file a subrogation suit. In 1999, one day before limitations ran, Hughes Watters filed a petition for intervention on behalf of Zurich in a case titled Sammie Lee Curtis, et al v. Northline Joint Ventures, et al. Subsequently, Hughes Watters filed a petition for intervention on behalf of Zurich in a case titled Rice Food Markets, Inc. v. Northline Joint Ventures, et al. This intervention was filed more than two years after the wall=s collapse. Hughes Watters then nonsuited Zurich=s claims in the Curtis case. The trial court granted summary judgment against Zurich in the Rice case on the ground that the original intervention did not toll limitations and, therefore, that Zurich=s subrogation claim was barred by limitations. Zurich filed suit against Hughes Watters for legal malpractice. Hughes Watters filed a traditional motion for summary judgment asserting that Zurich could not establish the Acase within a case@ necessary to prevail on its legal malpractice claim because Piccadilly did not sustain property damage when the wall collapsed and, therefore, that the economic loss rule precluded any recovery. The trial court granted Hughes Watters summary judgment. Zurich appeals from this judgment. Issue on Appeal In Zurich=s sole issue, it asserts that the trial court erred in granting Hughes Watters=s motion for summary judgment because Piccadilly sustained property damage and, therefore, that Zurich could have satisfied the economic loss rule. Standard of Review A trial court properly grants a motion for summary judgment if the moving party establishes that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991). Summary judgment in favor of a defendant is proper if the defendant disproves at least one element of the plaintiff's case. Am. Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997). When reviewing a summary judgment, we take as true evidence favorable to the nonmovant and indulge every reasonable inference and resolve any doubts in favor of the nonmovant. Id. at 425; Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 549 (Tex. 1985). Case-Within-a-Case Rule A legal malpractice claimant must show that a duty existed, that the duty was breached, and that the breach was the proximate cause of plaintiff=s damages. Cosgrove v. Grimes, 774 S.W.2d 662, 666 (Tex. 1989); Mackie v. McKenzie, 900 S.W.2d 445, 448 (Tex. AppCTexarkana 1995, writ denied). To establish proximate cause, the claimant must show that it would have prevailed in the underlying suit but for the attorney=s negligence. Schaeffer v. O=Brien, 39 S.W.3d 719, 720-21 (Tex. App.CEastland 2001, pet. denied ). This is often referred to as the Acase within a case.@ Id. Zurich=s malpractice claim, therefore, required proof that it would have prevailed in its subrogation claim if Hughes Watters had intervened before the statute of limitations expired. Economic Loss Rule The economic loss rule provides that, in tort cases, economic damages are not recoverable unless they are accompanied by actual physical injury or property damage. Hou-Tex, Inc. v. Landmark Graphics, 26 S.W.3d 103, 107 (Tex. App.CHouston [14th Dist.] 2000, no pet.). The rule is a vehicle for defining duty and liability. It has, for example, been used to distinguish between tort duties and contractual duties. See, e.g., Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). It has been used to define a manufacturer=s or seller=s liability when a defective product causes damage only to itself. See, e.g., Am. Eagle Ins. Co. v. United Techs. Corp., 48 F.3d 142, 144 (5th Cir. 1995); Nobility Homes of Tex., Inc. v. Shivers, 557 S.W.2d 77, 80 (Tex. 1977). It has also been used to define the extent of duty owed when one alleged tortfeaser=s action arguably damages several others. See, e.g., Rodriguez v. Carson, 519 S.W.2d 214, 215-16 (Tex. Civ. App.CAmarillo 1975, writ ref=d n.r.e.); see also Express One Int=l, Inc. v. Steinbeck, 53 S.W.3d 895, 899 (Tex. App.CDallas 2001, no pet.) (the economic loss rule places reasonable limits on a defendant=s liability to those who suffer only economic damages). The parties agree that the economic loss rule applies to any claim Piccadilly may have had. Zurich stood in the shoes of Piccadilly as the subrogee. Nat=l Union Fire Ins. Co. of Pittsburgh, Pa. v. John Zink Co., 972 S.W.2d 839 (Tex. App.CCorpus Christ 1998, pet denied). Zurich was, thus, subject to the rule as well. Zurich did not pay Piccadilly for any property damage but paid only business interruption benefits. Consequently, Zurich=s subrogation claim did not seek recovery of property damage but, instead, sought reimbursement of the business interruption benefits it had paid. Hughes Watters does not allege that Zurich was required to plead a property damage claim.[1] Hughes Watters contends that, because Piccadilly suffered no property damage, the economic loss rule bars the malpractice claim. Summary Judgment Evidence The parties executed an agreed stipulation of facts in connection with Hughs Watters=s motion for summary judgment. The parties agreed that a corridor wall at the mall collapsed, that this wall was not one of Piccadilly=s walls, and that Piccadilly was forced to close for approximately three months because of the wall collapse. The parties agreed further: The direct damage to the location consisted of cleanup of the restaurant=s equipment and fixtures from the construction dust. Some stock items and prepared food and food in process spoiled as a result of the closure of the location. Did Piccadilly Suffer Property Damage? Neither party has provided this court with any authority for the definition of property damage. Our research has revealed no economic-loss-rule case which attempts to provide a comprehensive definition of property damage other than by example. To determine if Piccadilly=s cleanup work and spoiled food costs constitute property damage, we will consider these examples and case law defining property damage in other contexts. In Trans-Gulf Corp. v. Performance Aircraft Servs., Inc., 82 S.W.3d 691, 695 (Tex. App.CEastland 2002, no pet.), this court held that the economic loss rule barred a claim by an aircraft purchaser against a repair company for additional costs incurred because of a faulty fuel tank repair. In Blanche v. First Nationwide Mortgage Corp., 74 S.W.3d 444, 453 (Tex. App.CDallas 2002, no pet.), the court held that credit damage and increased costs incurred because of that damage were economic damages and, thus, not recoverable in a simple negligence action. In Express One, 53 S.W.3d at 899, the court held that the economic loss rule barred a claim by an employer against a former employee for litigation-related costs it incurred because of a statement posted by the former employee on an internet bulletin board. In Coastal Conduit & Ditching, Inc. v. Noram Energy Corp., 29 S.W.3d 282, 290 (Tex. App.CHouston [14th Dist.] 2000, no pet.), the court held that a contractor=s claim for increased costs because of a gas company=s failure to properly lay or mark pipelines was barred by the economic loss rule. Tex. Fin. Code Ann. ' 304.101 (Vernon Supp. 2005) allows for prejudgment interest in wrongful death, personal injury, or property damage cases. The statute does not define Aproperty damage.@ Texas courts construing this statute have given the term its ordinary meaning. See Associated Tel. Directory Publishers, Inc. v. Five D=s Publ=g Co., 849 S.W.2d 894, 900 (Tex. App.CAustin 1993, no writ). One court has held that property damage ordinarily entails physical destruction of property. Amarillo Nat=l Bank v. Terry, 658 S.W.2d 702, 704 (Tex. App.C Amarillo 1983, no writ) (bank=s loss caused by minor=s unauthorized withdrawals constitutes economic loss and not property damage). Other courts have held that property damage requires actual damage to tangible property and not mere economic loss or loss of economic opportunity. See, e.g., Mfrs. Auto Leasing, Inc. v. Autoflex Leasing, Inc., 139 S.W.3d 342, 348 (Tex. App.CFort Worth 2004, pet. denied); Spangler v. Jones, 861 S.W.2d 392, 398 (Tex. App.CDallas 1993, writ denied). From these cases it is clear that property damage cannot consist merely of damage to an intangible asset or increased operational costs. Instead, some physical destruction of tangible property must occur. Piccadilly=s cleanup costs are merely increased operational costs and do not satisfy the economic loss rule. The spoiled food and food products is a closer question. Because the products spoiled as a result of the restaurant=s closure, they are also economic damages. Food and food products are continually consumed and replaced as part of a restaurant=s normal operations. Because they are perishable goods, they must be discarded if not timely consumed. The collapsed wall did not destroy any of Piccadilly=s inventory. That inventory was discarded because the restaurant was closed for three months. If Piccadilly had prosecuted its own action, its claim would not have been for the cost of replacing any inventory but for the profits it lost as a consequence of being closed for three months. Piccadilly=s cleanup costs, inventory restocking costs, and any other out-of-pocket expenses incurred while closed would have factored into the lost profits calculation. Zurich has not identified any property damage that Piccadilly sustained as a result of the wall=s collapse. Consequently, the economic loss rule bars Zurich=s subrogation claim, and the trial court correctly granted Hughes Watters=s motion for summary judgment. Zurich=s issue is overruled. Conclusion The trial court=s judgment is affirmed. RICK STRANGE JUSTICE July 13, 2006 Panel consist of: Wright, C.J., and McCall, J., and Strange, J. [1]We need not decide, therefore, if Zurich was required to assert a property damage claim or merely that its insured suffered one, and we express no opinion on this issue. Cf. Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 530 (Tex. 1998) (prejudgment interest statute does not apply when claimant pleads only economic loss rather than property damage); Express One, 53 S.W.3d at 899 (to recover damages for negligence, a party must plead and prove something more than mere economic harm).